ABSTRACT The distance between governments and firms is associated with firms’ economic activities, while the association of geographic proximity to environmental agencies with industrial pollution emissions is unclear. To explore the effects of geographic distance on firms’ pollution emissions, we use the fixed-effect models with data from the China Industrial Enterprise Database. Our results show that the firms located further away from environmental agencies release more SO2 (β = 0.102, p < 0.01) than those close to those environmental agencies. Subsequent investigations reveal that geographic distance has a positive correlation with the short-term performance of firms (total production value and fixed investment) but a negative correlation with firms’ long-term performance (green innovation, technological updates and clean energy use). Heterogeneous checks show that the influence of geographic distance on SO2 emissions is mainly found in non-local firms, suggesting a possibility of collusion between proximate firms and local government. This study highlights how the firm-agency distance relation affects pollution emissions and suggests that policymakers should consider more efficient instruments for environmental management.
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