Heavy-polluting Firms Research Articles

Does environmental information disclosure regulation improve environmental governance? Evidence from China

This study examines the effectiveness of Chinese environmental information disclosure (EID) regulations. We find that EID regulations improve firms' EID quality (i.e., exist information effect) and foster firms' green behavior (i.e., exist green effect). Mechanism analysis shows that due to lower audit risks, heavy-polluting firms are charged lower audit fees after the implementation of EID regulations; and due to less managerial myopia, heavy-polluting firms significantly increase green investment and green innovation following EID regulations. Additional heterogeneity analysis shows that these information and green effects can be strengthened by institutional environment factors, such as media coverage, audit quality and political cost.

Impact of energy saving and emission reduction policy: Empirical evidence from regional and local business in China

AbstractReducing energy intensity (EI) is essential to promoting sustainable development. The “National Energy Saving and Emission Reduction Comprehensive Demonstration Fiscal Policy” (ESERP) is the green fiscal policy adopted by China in an effort to maximize energy use and promote sustainable development. The paper analyzes the influence of ESERP on EI from regional and business standpoint. The results indicate that ESERP is effective in reducing EI, especially when it is implemented in noneastern, low administrative, and high urbanization cities. This policy effect is realized by promoting green technology innovation and enhancing industrial structural upgrading. However, ESERP enhances EI of neighboring areas around the pilot cities, especially within 200 to 400 km of the perimeter. Meanwhile, the co‐implementation of ESERP and smart city pilot policies is beneficial in reducing EI. Additionally, business strategy analysis indicates that ESERP effectively reduces EI of firms, especially in private, technology‐intensive, asset‐intensive, and heavy polluting firms. This paper provides empirical experience for optimizing green fiscal policy and promoting sustainable business development, which has significant policy guidance value and business strategy significance.

Can government environmental auditing and fiscal transparency promote the green development of heavy-polluting firms?

Corporate green development (GD) is critical for realizing China’s double carbon targets, and government environmental auditing is an essential path for supervising the GD behavior of enterprises. However, the effect of government environmental auditing on corporate GD has not been thoroughly investigated, particularly through the path of improving fiscal transparency. This study takes Chinese A-share listed companies in heavily polluting industries from 2011 to 2022 as the sample and uses statistical models to empirically test the effects. The results indicate that government environmental auditing can significantly facilitate corporate GD by improving fiscal transparency. Government auditing functions to checking and preventing environmental pollution issues can promote enterprises’ GD. The function of preventing pollution issues has the most substantial promotion effect. The analysis of regional heterogeneity indicates that government environmental auditing in the western region has the strongest effect. The conclusion of this study provides theoretical support and guidance for strengthening government environmental auditing, improving government fiscal transparency, and promoting the GD of enterprises.

Does Environmental Protection Law Bring about Greenwashing? Evidence from Heavy-Polluting Firms in China

To enhance environmental governance for sustainable development, China has made efforts to address environmental issues through formal institutions. The enactment of the new Environmental Protection Law (EPL) in 2015 exerted new institutional pressures on heavy-polluting firms. Our study focuses on examining the phenomenon of greenwashing among these firms after the implementation of EPL. Using difference-in-difference model, we identify that EPL results in an increase in greenwashing behavior by heavy-polluting firms. Furthermore, our research reveals that while EPL implementation enhances disclosure performance in heavy-polluting firms, there is no tangible improvement in substantive environmental performance. These results are supported by various robustness tests that affirm their reliability. Additionally, we uncover that government subsidies exacerbate greenwashing in heavy-polluting firms. In contrast, the availability of slack resources diminishes the impact of EPL on greenwashing behavior. This study not only enhances the understanding of the mechanism of the impact between EPL and firm greenwashing, but also offers suggestions to help the government for better environmental governance as well as firms to engage in environmental behaviors and sustainability.

Emission rights mortgage and stock price crash risk: evidence from China

ABSTRACT Using the emission rights mortgage (ERM) policy in China as an exogenous shock, we employ a difference-in-differences approach to examine how ERM affects stock price crash risk of heavy-polluting firms. We find that the implementation of the ERM policy reduces stock price crash risk. Heterogeneity analysis reveals that this effect is stronger for firms with more severe financial constraints, those with lower information disclosure quality, those located in regions with greater local government’s environmental concerns, and non-SOEs. Our findings further our understanding of the economic consequences of ERM policy.

Corporate earnings management strategy under environmental regulation: Evidence from China

In response to external adverse factors affecting corporate performance, managers may be motivated to engage in earnings manipulation. Environmental regulation as an institutional factor threatens normal earnings for heavy-polluting firms. This paper discusses corporate earnings management strategy under an environmental regulation policy. A multistage difference-in-differences (DID) estimation is performed, based on the central environmental protection inspection (CEPI) that is widely acknowledged as China's most stringent environmental policy. The results show that heavy-polluting firms significantly adjust their earnings management strategy after CEPI. Managers tend to adopt real activities manipulation with the effects of CEPI, while reducing their reliance on accrual-based earnings management. CEPI stimulates heavy-polluting firms to increase environmental investment, which makes their managers more likely to manage earnings through real activity manipulation, simultaneously resulting in the reduction of discretionary accruals. This earnings management strategy only appears in firms inspected in 2016 or non-state-owned enterprises or firms located in the regions with low environmental pressure. Our findings show that managers could use the chances provided by exogenous shocks to manipulate earnings.

The Impact of Government Participation in Ecological Championship on Heavily-Polluting Corporate Earnings Management: Evidence from China’s National Civilized City Award

This study investigates the response of heavy-polluting firms to the political costs associated with local government participation in the ecological championship, with a specific focus on China’s National Civilized City Award. Employing the fourth national civilized city selection as a quasi-natural experiment, the results reveal that heavy-polluting firms in cities with the prestigious National Civilized City Award title engage in income-decreasing earnings management to respond to rising political costs resulting from the National Civilized City Award campaign. Our findings are robust across various sensitivity analyses. Furthermore, we identify that the impact of the National Civilized City Award campaign on corporate earnings management is particularly pronounced among sub-samples characterized by non-state ownership, high visibility, and strong incentives for promoting local officials. Our study further elucidates that the increased political costs faced by heavy-polluting firms can be attributed to the local government’s efforts to subject them to more stringent environmental enforcement to pursuing the honor of National Civilized City Award. This study contributes to the existing literature on the political cost hypothesis and provides a new perspective for understanding the impact of environmental regulation on corporate.

Environmental sustainability and employee satisfaction

Given the increasing emphasis on environmental sustainability, we investigate whether firm pollution drives employee satisfaction and find that satisfaction is substantially lower in more polluting firms. We also show that more educated employees, employees aged between 30 and 40, and management employees are less satisfied when their firms pollute. Additionally, employees in heavy-polluting firms are less satisfied with their senior leadership, and are less likely to recommend their firms to their friends. Overall, employees care about environmental sustainability and reducing pollution seems essential to increasing employee satisfaction.

Digital transformation, corporate social responsibility and green technology innovation- based on empirical evidence of listed companies in China

Green technology innovation is an inevitable requirement to promote the realization of double carbon goal and realize sustainable development. It is also a vital accelerator for the transformation and upgrading of economic structure to promote the high-quality development of national economy. This article empirically testifies the impact path of corporate digital transformation level on green technology innovation ability, from the perspective of green technology innovation, based on the A-shares of 2660 manufacturing companies listed in Shanghai and Shenzhen between 2015 and 2020 by using a fixed-effect zero-inflation negative binomial regression model. Digital transformation can enhance enterprises' green technology innovation capability, according to the results, and several robustness tests have confirmed this finding. By improving corporate social responsibility, corporate digital transformation enhances green technology innovation capability. When it comes to the heterogeneity of corporate digital transformation's promotion of green technology innovation, compared to large enterprises, SMEs have an obvious advantage. Non-heavy polluting industries are significantly higher than heavy polluting firms while heavy polluting firms are not able to innovate using green technologies as a result of enterprise digital transformation.

The risk-mitigating role of corporate social responsibility in Chinese listed heavy-polluting companies: An extreme event experience perspective

Corporate social responsibility (CSR) has long been a strategic concern for polluting companies. Using data on Chinese listed companies in the heavy-polluting industries from 2009 to 2019, we found that companies managed by chief executive officers (CEOs) who had experienced an unpredictable extreme event—namely, the outbreak of severe acute respiratory syndrome (SARS) in 2003—have higher CSR scores. The decline in the performance of the companies where the CEO worked in 2003 is positively associated with the CSR scores of the CEO's current company. Moreover, CEOs' pandemic experience significantly improved CSR scores for companies with higher energy consumption and more significant operational risks. For companies with CEOs who experienced the SARS pandemic, higher CSR scores can help them achieve higher performance and take less risk during the COVID-19 pandemic. The empirical results indicate the risk-mitigating role of CSR for Chinese heavy-polluting firms and the unintended long-term effects of the pandemic.

Green credit policy and corporate charitable donations: Evidence from China

Green credit policy (GCP) is a measure the government takes to protect the environment, which will impact firms’ behavior. Using a Chinese GCP launched in 2012 as a credit shock and the data of Chinese listed firms from 2007 to 2018, this paper investigates the impact of this credit policy on corporate charitable donations. This paper employs the difference-in-differences method, defining heavy-polluting firms as the treatment group and non-heavy-polluting firms as the control group. Our results show that the GCP significantly improves the charitable donations of heavy-polluting firms. Mechanism analysis indicates that GCP impacts charitable donations through financial constraints and environmental regulatory pressure. Heterogeneity analysis suggests that this effect is stronger for non-state-owned enterprises and firms with weaker external monitoring. Our findings enrich the research on the economic consequences of green credit policy and have practical implications for regulators and policymakers.

Does informal environmental regulation matter? Evidence on the different impacts of communities and ENGOs on heavy-polluting firms’ green technology innovation

Firms, especially heavy-polluting firms, are facing intense pressure from informal environmental regulations, which play a unique role in promoting heavy-polluting firms’ green technology innovation (GTI). Communities and ENGOs are two important informal environmental regulation entities that have different influence mechanisms to stimulate heavy-polluting firms in GTI. The research results indicate that heavy-polluting firms’ GTI follows an inverted U-shape as the number of communities around these firms increases, whereas it follows a positive linear correlation as the number of ENGOs increases. Interestingly, ownership types and administrative hierarchy distance positively moderate the curvilinear and linear relationships. State-owned enterprises (SOEs) are more inclined to maintain their legitimacy by fulfilling communities’ and ENGOs’ environmental requirements than non-SOEs. A shorter administrative hierarchy distance means that firms are supervised by high-level governments. The autonomy effect of lower-level governments does not affect the vigorous enforcement of environmental policies, which also enhances these two relationships.

Environmental protection subsidies, green technology innovation and environmental performance: Evidence from China's heavy-polluting listed firms.

The heavy-polluting industry is inexorably to responsible for the deterioration of the environment. Improving environmental performance is an unavoidable decision for heavy-polluting firms to ensure sustainable development under the policy framework of the carbon peak target. This study provides theoretical and empirical evidence for the effect of environmental protection subsidies on environmental performance. This study constructs basic and mediating effect models to measure how environmental protection subsidies affect environmental performance using panel data of China's heavy-polluting listed firms from 2008 to 2019. This is an important outcome of industrial green transformation in environmental governance and provides a scientific basis for government departments to formulate environmental policies. The results of the empirical analysis show that environmental protection subsidies can improve the environmental performance of heavy-polluting listed firms. After receiving environmental protection subsidies, firms engaged in clean and green production through green technology innovation, thereby reducing external environmental pollution and improving their environmental performance. The mediating role of green technology innovation in the relationship between environmental protection subsidies and environmental performance is significant only in state-owned firms and firms in Eastern China. The research results may further guide the direction of green development of heavy-polluting industries, and thus promote harmonious development between the environment and the economy.

Environmental regulation, digital finance, and technological innovation: evidence from listed firms in China.

Environmental regulation becomes essential to corporate technological innovation amid increasing concern with environmental issues. However, a clear understanding of the specific role of environmental regulation's ex-post effectiveness is lacking. Using the panel data of Chinese A-share listed firms during 2011-2018, we examine the effects of environmental regulation on corporate technological innovation. The results indicate that environmental regulation negatively affects corporate technological innovation. With regard to digital finance, it benefits for corporate technological innovation and positively moderates the relationship between environmental regulation and corporate technological innovation. The heterogeneity analysis suggests that the negative impact of environmental regulation over technological innovation is much significant for small-scale firms, western-region firms, and firms with strong financing constraints. Furthermore, the moderating role of digital finance is more significant for firms with strong financing constraints and heavy polluting firms. We also verify the robustness of the regression results. The current study provides both theoretical support and reference to improve corporate technological innovation and promote high-quality economic development through adopting reasonable policy measures.

Promotion vs. pollution: City political status and firm pollution

Some corporate pollution behaviors raise public concern on whether local governments can strictly implement the central environmental policy to restrain heavy-polluting firms within their jurisdiction. To explain this tension, on the basis of political incentives, we discuss the effect of the political status of the city where the local government is located on the corporate pollution behaviors within the jurisdiction and consider that political status is an important factor influencing the local governments' trade-off between economic growth and environmental governance. We believe that the political status is an innate political incentive for local governments, indicating that the higher the political status is, the stronger the political incentive the local governments perceive and the more motivated they are to implement environmental policies strictly, thereby reducing corporate pollution behaviors. In addition, we propose that the promotion opportunities of local officials will further strengthen their perceived political incentives, thus reinforcing the focus relationship, whereas geographical distance between central and local governments will further weaken the implementation of local governments, thereby undermining the focus relationship. Analyses on the Chinese heavy-polluting firms listed on stock exchanges from 2008 to 2020 support these arguments. Thus, our results clarify the mechanism of political status influence on corporate pollution behaviors and contribute to the literature on political incentives.

The Impact of Environmental Tax Reform on Total Factor Productivity of Heavy-Polluting Firms Based on a Dual Perspective of Technological Innovation and Capital Allocation

As an essential reform of China’s environmental regulatory policy, the environmental protection tax reform achieves a smooth transition from the emission fee system to the environmental protection tax system according to the principle of tax burden leveling. With the quasi-natural experiment of the introduction of the Environmental Protection Tax Law, this paper examines the effect of environmental protection tax reform on total factor productivity of heavily polluting firms using a difference-in-difference approach based on empirical evidence of Chinese listed companies from 2015 to 2020. It is found that environmental tax reform can significantly increase the level of total factor productivity of heavily polluting firms, and the results remain robust to robustness tests using the OP method, the GMM method to re-measure the total factor productivity of heavily polluting enterprises and the use of different industry classification criteria, with the mechanism of action mainly coming from the technological innovation effect and capital allocation optimization. In addition, the effect of environmental tax reform on total factor productivity of heavily polluting firms is heterogeneous across regions and industries, with the total factor productivity of firms in heavily polluting industries in the eastern region being least affected by environmental tax policies and state-owned enterprises with heavy property rights structures being most affected by environmental tax reform.

China green credit policy and corporate green technology innovation: from the perspective of performance gap.

Green credit policy is an essential external driver of green transformation for companies, while the performance gap is a vital decision-making foundation for innovative reform for managers. Both work together and influence corporate green technology innovation. Based on this, this research examines the influence of green credit on corporate green technology innovation under the assumptions of "cost compliance" and "innovation compensation" from the perspective of the performance gap. It shows that green credit policy inhibits green technology innovation among heavy polluting firms. Still, after considering the performance gap, the inhibiting effects are only found in firms with performance deficits. In contrast, green credit policy promotes green technology innovation when firms have a performance surplus. The heterogeneity analysis finds that the boosting effect of performance surplus is more significant in non-state, large-scale, and financially developed regions.

Does the government’s environmental attention improve enterprise green innovation?—Evidence from China

In recent years, governments worldwide have paid more attention to environmental issues, and green innovation is essential to balance economic growth and environmental sustainability. This article investigates the different impacts of the government’s environmental attention on green innovation of heavy-polluting and non-heavy-polluting firms using the sample of listed firms in China from 2011 to 2019. We find that the relationship between the government’s environmental attention and green innovation is consistent with the “U”-shape in heavy-polluting firms. However, the government’s environmental attention positively impacts the green innovation of non-heavy-polluting firms. In addition, Fintech mitigates the negative effects of the government’s environmental attention on green innovation in the short term while enhancing the positive effect of the government’s environmental attention on green innovation in the long term for heavy polluting firms. Our article provides evidence and implications for environmental regulation in developing countries and urban areas.

Environmental Self-Regulation and Firm Survival: Evidence from China

Environmental self-regulation (ESR) is an increasingly important instrument to solve environmental problems. Although ESR is linked to improved firms’ environmental performance, it is unclear whether ESR benefits firms’ long-term survival. We use environmental certifications, an externally certified form of ESR, and operation data of Chinese manufacturing firms from 1999 to 2013 to examine the impact of ESR on firm survival. We find that ESR participation significantly improves firm survival, and this effect is more evident on heavy-polluting firms and non-state-owned firms and in regions and periods with more stringent environmental regulations. Mediating effect analysis shows that this enhanced survival effect is mainly from favorable governmental treatment including lower regulatory cost and higher subsidies, instead of from market factors including cost reduction, higher demand, and technology improvement. This study contributes to our understanding of the performance consequences of firm environmental conduct and the underlying mechanisms.

Green Credit Policy and Corporate Stock Price Crash Risk: Evidence From China.

Using the promulgation of Green Credit Guidelines in China as the research setting, this paper exploits a quasi-natural experiment to examine the impact of green credit policy on the stock price crash risk of heavy-polluting firms. The results show that green credit policy significantly increases the risk of stock price crash of heavy-polluting firms. Such impact is transmitted through increased financial constraints and reduced information transparency. In addition, we find that the impact of green credit policy on the stock price crash risk is more pronounced in firms with weak external governance and a small size. Our findings provide policy implications for mitigating corporate risks and promoting corporate sustainability.