Polluting Firms Research Articles

The Impact of National Big Data Pilot Zones on the Persistence of Green Innovation: A Moderating Perspective Based on Green Finance

Enhancing the persistence of corporate green innovation is crucial for promoting sustainable societal development. As big data technologies and related policies advance, digitalization emerges as an effective enabler of green innovation in enterprises. This study, grounded in resource-based theory and corporate ecology theory, examines the impact of national-level big data pilot zone reforms on the persistence of corporate green innovation, utilizing data from China’s A-share-listed companies from 2011 to 2021. It also explores the moderating effect of green finance development. Empirical results indicate that (1) the implementation of national-level big data pilot zones positively influences the persistence of green innovation, with robustness and endogeneity tests confirming these findings. (2) The development of regional green finance positively moderates this relationship. (3) A mediation analysis reveals that national-level big data policies enhance innovation persistence by alleviating financing constraints, promoting talent aggregation, and facilitating industrial upgrading. (4) The heterogeneity analysis shows that the positive impact of these reforms is more pronounced in non-state-owned, non-heavy polluting firms, those receiving high subsidies, and in regions with stringent environmental regulations. This study offers a novel theoretical perspective on and empirical evidence for digital transformation from the angle of national policy, supporting societal green development and contributing to policy enhancement aimed at achieving sustainable growth.

Synergistic abatement effects of Broadband China and environmental regulation: Firm-level evidence

Based on the new era context of digital economy and green development, this study uses Broadband China (BC) as a quasi-natural experiment, combining its strategic interaction with environmental regulation (ER), to empirically test the policy synergistic abatement effect of BC and ER. BC has resulted in an average of 6 % reduction in corporate carbon emissions, and the BC–ER policy interaction has encouraged firms to further reduce their emissions. This policy mix mainly exerts an abatement effect on firms by increasing green factors at the input–output stage and improving production efficiency. Furthermore, the digitalization effect of BC reduces corporate carbon emissions. Our empirical results are stronger for firms with high financial constraints, non-heavily polluting firms, non-high-technology firms, state-owned enterprises, and developed urban agglomerations. Furthermore, BC significantly suppresses the sectoral and spatial spillover effects of corporate carbon emissions, and external shocks to ER exacerbate this suppression effect. This study provides empirical evidence supporting the “tripartite win–win” of digital construction, green transformation, and energy conservation.

Path dependence in environment-related innovation: evidence from listed firms in China

ABSTRACT This paper studies the path dependence effect in corporate innovation based on the patent data of Chinese listed firms. The results provide robust evidence of the path dependence in technology innovation. The accumulated stock of brown patents reduces the ratio of green patents to total patents newly granted, thus inhibiting green structural changes in innovation. The accumulated stock of green patents increases the ratio of green patents in total patents granted, promoting structural change towards green innovation. The path dependence effect exists in both green inventions and green utility model patents. The heterogeneity analysis shows that both brown and green patent stocks of heavy polluting firms have a weaker effect on the ratio of green inventions than non-heavy polluting firms. The negative path dependence effect of brown patents on green innovation is stronger in firms with large scale, state ownership, and a high level of environmental regulation. However, the negative path dependence effects on green innovation can be alleviated for firms with superior environmental and financial performance. This suggests that the government has to create economic incentives to break the path dependence and encourage firms to engage in green innovation.

The impact of green public procurement on corporate green innovation: evidence from machine learning and text analysis

Based on a database of over 650,000 green public procurement (GPP) contracts, we apply machine learning and text analysis methods to identify GPP. Our study examines the impact of GPP on green innovation using Chinese companies listed on the A-share market. The study has the following findings. (1) GPP significantly promotes green innovation by alleviating financing constraints and incentivizing green practices. (2) Enterprises in the maturity or growth stage, non-heavily polluting firms, and companies in regions with stringent environmental regulations are more likely to benefit from GPP. Additionally, GPP initiatives from local governments, centralized procurement, and university-based programs provide stronger incentives for green innovation. (3) Demand-side GPP and supply-side subsidies for green innovation have coordination effects. Corporate green innovation is positively influenced by the “Demand-side procurement First, Supply-side subsidies Later (DFSL)” and the “Demand-side procurement and Supply-side subsidies Simultaneously (DSS)” policies.

Stranded Asset Risk in the Bond Market

Asset stranding involves permanently shutting down productive but harmful facilities that impose negative externalities on society. Because bonds are a major source of funding for corporations, investors such as pension funds and insurance companies seeking to reduce their exposure to asset stranding have the potential to limit the supply of capital to polluting firms by divesting their holdings of the polluting firms’ bonds. We examine the implications of stranded asset risk for polluting firms regulated under the Clean Air Act (CAA). Polluting facilities located in counties in violation of the CAA are required to comply with the act’s provisions regardless of cost, leading to a contraction in capital for companies with facilities located in affected counties. More broadly, this study contributes to our understanding of whether and how pollution externalities affect private-sector capital supply to polluting firms.

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.

Does public environmental concern cause pollution transfer? Evidence from Chinese firms' off-site investments

The power of public environmental concern cannot be ignored. It is vital in promoting environmental legislation, corporate social responsibility, and sustainable development. Existing studies have discussed the positive governance effects of public environmental concern on environmental quality but have neglected the issue of environmental inequality due to pollution transfer resulting from differences in public environmental concern. We used the data from the off-site investment of Chinese heavy polluting firms to reveal the impact of public environmental concern on pollution transfer. Our research revealed that (1) Public environmental concern causes polluting firms to transfer out, thus generating the pollution transfer phenomenon. (2) Public environmental concern can cause pollution transfer through increased environmental penalties. From the perspective of external environmental incentives, market competition, market potential, and government environmental concern strengthen the positive influence of public environmental concern on pollution transfer. In terms of the intrinsic motivation of firms, risk-taking capacity, green innovation ability, and asset-stranding risk weaken the positive influence of public environmental concern on pollution transfer. (3) The public environmental concern is also characterized by “grasping the large and letting go of the small”. Public environmental concern remarkably induces pollution transfer when firms' environmental awareness is low and local government officials' political incentives are high. These findings help policymakers to place greater emphasis on the power of public concern. Moreover, they can further improve the pluralistic governance structure of environmental regulation.

The impact of green credit legislation on business financing: Insights from Chinese polluting firms

Introducing sustainable credit protection by companies depends on eco-friendly funding that accelerate businesses' technical development and transformation. This study investigates the sustainable financing roles through green credit legislation which impacted state owned enterprises and non state owned enterprises. We have investigated our hypothesis using the Propensity Score Matching Difference-in-Differences (PSM-DID) model. For this purpose we collected data of businesses listed on the Shanghai and Shenzhen stock exchanges that are country's most polluting publicly listed enterprises between 2009 and 2021. The results of the study reveals that liquid Finance and industrial Credit experienced a meteoric rise while the use of illiquid debt financing has dropped significantly among highly polluting organizations. This pattern has intensified after China introduced its “sustainable credit guidelines.” Additionally, businesses in areas with lower sustainable development indices are more likely to feel the consequences of sustainable credit programs. However, there is still a need for prudent capital flow allocation in response to the personalized financing preferences resulting from the sustainable credit policy at the business level, even if China's sustainable credit rules have unquestionably reduced the use of illiquid debt financing by severely polluting enterprises. Policy implications include improving the direction signalled to these businesses via sustainable funding.

Environmental legal institutions and management earnings forecasts: Evidence from the establishment of environmental courts in China

This paper investigates whether and how managers of highly polluting firms adjust their earnings forecast behaviors in response to the introduction of environmental legal institutions. Using the establishment of environmental courts in China as a quasi-natural experiment, our triple difference-in-differences (DID) estimation shows that environmental courts significantly increase the likelihood of management earnings forecasts for highly polluting firms, compared to non-highly polluting firms. This association becomes more pronounced for firms with stronger monitoring power, higher environmental litigation risk, and greater earnings uncertainty. Additionally, we show that highly polluting firms improve the precision and accuracy of their management earnings forecasts following the establishment of environmental courts. Furthermore, we provide evidence that our results do not support the opportunistic perspective that suggests managers strategically issue more positive earnings forecasts to inflate stakeholders' expectations subsequent to the implementation of environmental courts. Overall, our research indicates that environmental legal institutions make firms with greater environmental concerns to provide more forward-looking information, thereby alleviating stakeholders’ apprehensions regarding future profitability prospects.

Environmental regulation and productivity growth in the euro area: Testing the porter hypothesis

This paper examines the impact of changes in the stringency of environmental regulations on productivity growth. We exploit several data sources, including the OECD Environmental Policy Stringency Index and balance sheet information from ORBIS and iBACH, to test the Porter hypothesis, according to which firms’ productivity can benefit from more stringent environmental policies. We estimate the regulatory impact over a five-year horizon using panel local projections. To identify the direction of the effects, we estimate CO2 equivalent emissions for all firms in our sample using a machine learning algorithm. As suggested by the country-level analysis and confirmed by the firm-level analysis, policy tightening negatively affects productivity growth of high-polluting firms and to a larger extent than that of their low-polluting peers. Hence, we do not find support for the Porter hypothesis in general. However, not all policies have the same impact – non-market based policies are the most detrimental to productivity growth – and not all highly polluting firms are affected in the same way – the negative impact is mitigated for large firms, which may benefit from easier access to finance and greater innovativeness.

The impact of market-incentive environmental regulation policies on corporate environmental costs: Evidence from China's carbon trading policy.

As the world's largest emitter of carbon, China has implemented a series of environmental regulatory policies to reduce emissions. However, most of these environmental regulations have been at the expense of increased corporate environmental costs. Therefore, research on how to efficiently control these costs is of significant practical importance. This paper uses the China's carbon trading policy (CTP) implemented in 2013 as a quasi-natural experiment, utilizing data from Chinese listed manufacturing firms between 2008 and 2020. Employing a difference-in-differences (DID) model, the study investigates the impact of market-incentive environmental regulatory policies (ERP) on environmental costs. The findings reveal that CTP significantly reduced the environmental costs of firms, confirming the positive and vital role market-incentive ERP can play in environmental protection and cost control. These conclusions remain robust after a series of stability tests. Mechanism analysis suggests that the cost reductions brought by market-incentive ERP are primarily achieved through increasing green innovation. Heterogeneity analysis shows that non-state-owned enterprises (non-SOEs), key polluting firms, firms with lower financial constraints, and firms with lower total production efficiency benefit more from market-incentive environmental regulatory policies. This study provides new empirical evidence for government policy-making aimed at achieving long-term sustainable development.

Environmental pressure and board gender diversity: Evidence from the European Union Emission Trading System

AbstractWe examine how environmental pressure influences board gender diversity. Drawing from resource dependence, strategic adaptation, and gender socialization theories, we develop and test the prediction that firms with worse environmental performance have a higher likelihood of increasing their board gender diversity following a rise in environmental pressure. Focusing on the third phase (2013–2019) of the European Union Emission Trading System (EU ETS), we exploit the unexpected increase in emission prices after the European Council's (EC) intervention in 2017 as a quasi‐natural experiment bringing heightened environmental pressure to firms. Our baseline sample consists of 182 polluting firms in 20 different EU ETS‐covered countries. In line with our main hypothesis, we find that board gender diversity increases with firms' industry‐adjusted levels of pollution in the post‐EC intervention period, with the effect being particularly pronounced for firms with a higher exposure to emission prices and lower diversity levels. Inconsistent with a window dressing explanation, highly polluting firms replace incumbent male board members with highly qualified women. Our findings, which survive several robustness tests, suggest that more stringent environmental regulation drives social and governance changes at top corporate levels.

A modelling framework for equity portfolio projections under different carbon price scenarios

It is recognised that climate risks (including carbon pricing policy) are a new source of risk for the financial system. We propose a modelling framework for medium-term projections of stock returns under different carbon price scenarios. First, we construct a green factor to augment the classic capital asset pricing model (CAPM) and capture a firm’s exposure to climate policy risks. Then, we project to 2040 the factors of the CAPM, conditional on different carbon price pathways, using the estimated medium-scale Bayesian vector autoregressive model (MBVAR). Finally, we project the stock returns of each firm in the portfolio. Our scenarios suggest that the impacts of a carbon price policy are not confined to the most polluting firms (mining and quarrying, transportation and storage firms) for the effect of systematic risk. Moreover, in the short term, the negative impacts of a carbon price policy are more accentuated under a disorderly than an orderly transition. In the medium term, the projections suggest that the stock market progressively adapts to new conditions and believes in the benefits of rigorous carbon policies to incentivise the transition to a low-carbon economy. The proposed toolbox may represent effective support for investors in preparing portfolios for climate transition risks in the context of uncertainty regarding the timing of the introduction of a carbon policy. For policymakers, it can help shed light on how policies to prevent or mitigate climate change effects can affect financial stability.

Green credit policy and digital transformation of polluting firms: a quasi-natural experiment from China

Green credit is an important way to achieve global green development. Using the adoption of the Green Credit Guidance (GCG) policy implemented by the Chinese government in 2012 as a quasi-natural experiment, this article examines the impact of the GCG on the digital transformation of highly polluting firms. This research uses text analysis to assess the extent of digital transformation. The empirical findings show that the GCG has a considerable detrimental effect on the digital transformation of significantly polluting businesses. According to the underlying mechanics, the GCG prevents extremely polluting firms from digitalization by tightening financial restrictions and lowering innovation inputs. The GCG’s disincentive effect on heavy polluters is especially more pronounced in state-owned listed corporations and the Central and Western areas of China, as demonstrated by heterogeneity research. Our research offers novel ideas for creating a digital economy and promoting sustainable development in emerging developing nations like China.

The impact of climate change policies on financial stability of China

Climate transition risks pose growing financial stability concerns, but research on quantifying climate policy impacts remains underexplored. This paper helps address this gap by evaluating how carbon tax (CT) and green supporting factor (GSF) influence China’s financial stability. An innovative dynamic stochastic general equilibrium (DSGE) model incorporating the banking sector is developed to quantify transmission channels, improving on conceptual studies. It reveals that more intense climate policies heighten impacts on financial stability, with CT improving it but GSF hampering it in the long run. However, both policies negatively affect stability initially, albeit insignificantly. These diagnostics underscore calibrating policy intensities and sequencing to balance climate and economic objectives. Furthermore, this study reveals asymmetric effects on polluting and non-polluting enterprises, with the former seeing reduced output and lending but the latter gaining. The differentiated approach proposed, tailored to firm emissions levels, provides key insights for unlocking smooth green transitions while maintaining financial system resilience. The paper makes important contributions by bringing together climate policies, adaptation, and financial stability. The findings offer insights into achieving a smooth climate transition while maintaining financial stability. Specific implications include starting with low CT on the heaviest emitters, gradually lowering risk weights for green lending, and using public incentives and investment to aid polluting firms’ transition. This study offers valuable quantitative insights for developing country-specific climate financial risk policies.

Pollution-induced migration and environmental policy in an economic geography model

This paper develops a two-region New Economic Geography model with polluting firms subject to regional abatement policies. Pollution accumulates in the local environment and decreases the welfare of the population. We show that environmental policies have two opposing effects on welfare: they reduce nominal wages and increase environmental quality. If environmental regulations are equally strict in the two regions then population, pollution and wages tend to converge as trade becomes more open. If the two regions have different but unambitious environmental regulations, firms agglomerate in the laxer region, which becomes a pollution haven. However, a sufficiently far-reaching environmental policy in one of the regions raises its environmental quality, increasing its attractiveness for population and firms, and the emergence of a pollution haven is avoided. We also show that if the natural absorption rate of pollution is low, the environment recovers slowly, population and firms move between regions in a pollute-and-flee cycle and no static equilibrium is reached.

Impact of CEO overconfidence on enterprise digital transformation: Moderating effect based on digital finance

The rapidly expanding digital economy has driven enterprises’ digital transformation. This study examines the influence of CEO overconfidence on an enterprise's digital transformation using a behavioral finance approach. We discovered that (1) CEO overconfidence contributes significantly and positively to enterprise digital transformation. (2) Digital finance and its breadth of coverage, depth of use, and level of digitization positively moderate CEO overconfidence and enterprise digital transformation. (3) The promotional effect of CEO overconfidence on the digital transformation of high-tech, noncapital-intensive, and non-heavily polluting firms is significant.

Beyond technology: reducing environmental information asymmetry by centralizing environmental monitoring

Due to an information gap between the central government and local governments, the principal-agent problem arises when power is devolved to the bureaucracy and local governments. We look at how China’s decision to consolidate its network of air quality monitoring stations has affected the ability of local governments to influence air quality readings. After the switch to centralized monitoring, an increase in PM2.5 and PM10 levels was detected. No increase in aerosol optical depth (AOD) from satellites or emission from nearby polluting firms corroborates the hypothesis that this reported rise in PM2.5 and PM10 is not due to an increase in air pollution. These findings highlight the potential for data manipulation by local governments and the benefits of data centralization in reducing information asymmetry. According to our research results, we suggest that the government should establish a unified, centralized environmental quality monitoring system to reduce information asymmetry and data falsification.

Clarifying the dispute of corporate social responsibility: Evidence from green technological innovation

Although both corporate social responsibility (CSR) and green technological innovation (GTI) are beneficial to firm development, little is known about whether they can function well together. Drawing on the combination of stakeholder theory (ST) and attention-based view (ABV), this study adopts the double fixed effect model and the mediation effect model, using a sample of Chinese manufacturing listed firms from 2010 to 2021. The findings show: (1) CSR has a negative impact on GTI quantity and quality, with the impact on GTI quantity more severe. (2) Such hindering effects are caused by reduced R&D investment and increased internal control. (3) CSR's impediment of GTI is particularly significant among SOEs, high-tech, and non-high polluting firms. These conclusions remain robust after using alternative CSR measurements, Poisson/Probit regression model, instrumental variable test, and excluding the exogenous influence of COVID-19. These findings enhance the existing literature on CSR and GTI, and can be significant in improving investor decisions.

Regulation-induced financial constraints, carbon emission and corporate innovation: Evidence from China

Prior literature documents that in developed economies, tighter environmental standards may induce higher firm innovations. In contrast, using China's firm-level CO2 emissions data, this paper finds that firms with higher CO2 emissions are associated with lower corporate innovation. A 1% increase in carbon emissions reduces research and development (R&D) expenditures by about 4.3% to 6.3%, having controlled for endogeneity concerns. While technical and commercial uncertainty of innovation can deter high carbon-emitting firms from investing in R&D, we find that high carbon-emitting firms are financially constrained when faced with exorbitant pollution-related expenses. Instead, such firms acquire firms with green assets and purchase low-polluting target assets to mitigate environmental pollution. The results are more pronounced in firms with poor corporate governance, resource-constrained non-SOEs, and highly polluting firms. Our results remain robust for different measures of R&D expenditures, green R&D and different components of carbon emissions.