Symbolic reactions or substantive pro‐environmental behaviour? An empirical study of corporate environmental performance under the government's environmental subsidy scheme

Abstract

AbstractDo firms substantively improve their corporate environmental performance (CEP), or do they just react symbolically under the government's environmental subsidy (ENS) scheme? There is little empirical research into this business ethical problem in the literature. To understand how firms respond to the government's ENS scheme, in this study, we empirically examine the relationship between ENS and CEP. Specifically, we distinguish two types of CEP, that is, environmental management performance (EMP) and environmental operational performance (EOP), and then test the effects of ENS on EMP and EOP and the moderating role of environmental enforcement intensity (EEI) in both effects. We collect 5‐year panel data of Chinese listed companies operating in heavily polluting industries for the empirical analysis and find that (a) China's ENS significantly improves EMP, but its effect on EOP is not significant. Subsidized firms mainly respond to the government's ENS scheme through the process‐oriented pro‐environmental behaviour such as implementing the ISO14001 certification to improve EMP rather than the outcome‐oriented pro‐environmental behaviour such as investing on environment‐related R&D projects and energy conservation and emission reduction to improve EOP. This sort of firm pro‐environmental behaviour under the Chinese government's ENS scheme is symbolic rather than substantive. (b) China's EEI positively moderates the effect of ENS on EMP, but its moderating role in the effect of ENS on EOP is not significant. Therefore, the power of the current environmental regulation enforcement mechanism in China is insufficient to push firms to engage in real pro‐environmental activities to improve EOP. Relevant policy implications are discussed in the paper.