The impact of environmental regulation on firm performance: Evidence from the Chinese cement industry

Abstract

The relationship between environmental regulation and firm performance is a central question in environmental economics. Although many empirical works study this question, economists have not reached a consensus on the nature of the relationship or the mechanism that drives it. Based on the off-peak production policy in the Chinese cement market, this paper uses the differences-in-differences model to study the impact of environmental regulation on the revenue and profit of listed companies. We find that the environmental regulation has negative impacts on firms’ revenue and profit. According to further analysis, the main reason for this firm performance decline is that the relatively large elasticity of market demand prevents enterprises from passing regulatory costs through to consumers. Although the policy has caused the cement price to increase by 8%, it has led cement consumption to decrease by 16%.