Pollution-intensive Firms Research Articles

Location Preferences and Changes in Pollution-Intensive Firms from the Yangtze River Economic Belt, China

This study examined the location preferences and changes in pollution-intensive firms by analyzing the spatiotemporal distribution and drivers in the Yangtze River Economic Belt, a transitional manufacturing region in China. To analyze the distribution of firms under natural growth conditions prior to the implementation of the national “Great Protection of the Yangtze River” policy in 2016, this study utilized data on newly expanded industrial land use from 2007 to 2016. The results indicated that new pollution-intensive firms predominantly focused on water pollution, occupying over 40% of the total area annually. The new pollution-intensive firms preferred the geographic agglomeration siting strategy, mostly along the Yangtze River or in urban agglomerations, while gradually moving westward. The total area and number of new pollution-intensive firms in the Yangtze River Economic Belt showed an overall trend of “inverted U-shaped” variation during the study period, and the average size of the pollution-intensive firms gradually decreased. GeoDetector analysis revealed that geographical factors have always been significant. Local economic factors attracted new pollution-intensive firms, but later in the study period, these factors showed some inhibitory effect on the increase in pollution-intensive firms in the lower reaches. Government intervention worked less effectively but was significantly enhanced after interaction with other factors. Finally, the results suggested that local governments should build a stronger synergy between industrial land policies and environmental regulations to ensure sustainable growth and rational allocation of pollution-intensive firms.

Does the regional atmospheric quality punishment incentive mechanism (AQPI) promote environmental regulation? Subordinate government as an agent of superior environmental policies

Subordinate governments act as both agents of superior environmental policies and economic development leaders of the areas under their jurisdiction. The effectiveness of superior–level environmental policy is determined by the degree the subordinate governments are motivated to strengthen environmental regulation. Bottom–up punishment is introduced in the traditional top–down financial rewards to form a two–way atmospheric quality punishment incentive mechanism for the subordinate governments to improve environmental regulation. We take the atmospheric quality punishment incentive implemented in Shandong Province as a case, and the results show that the prefectural governments were encouraged to improve environmental regulation. However, the emission reductions were observed along with the decreased economic output in pollution intensive firms, not based on decreased intensity of key atmospheric pollutant emissions. In this case, the weighting and penalty price established for key pollutants should be increased, so that the subordinate governments can better assume the role of superior environmental policy agent.

Labor market impact of China’s cross-regional environmental regulation on pollution-intensive firms

The relationship between environmental regulation and labor demand has been mixed. Few research studies have considered the impact of cross-regional environmental regulations on the labor market, even though this is notable. We adopted a geographic regression discontinuity (RD) approach to investigate the labor market impact of the cross-regional environmental regulation “2 + 26” Cities Special Emission Limit Program for Air Pollutants. We found that the policy significantly boosts the labor demand of polluting firms rather than a simple inter-industry transfer, mainly through increasing investment in fixed assets and cost offset mechanisms. Further analysis of the structure of labor demand shows that the increasing workforce is primarily low-quality labor accompanied by wage loss. The government should recognize the risks of welfare loss from low-quality work due to environmental regulation and direct polluting firms to innovate rather than reduce costs by increasing demand for low-quality labor. This facilitates a better understanding of the labor market response to environmental policy from the perspective of cross-regional environmental regulation.

Does green finance really inhibit extreme hypocritical ESG risk? A greenwashing perspective exploration

This paper investigates the link between green finance development and firms' environmental, social, and governance (ESG) performance quality based on a firm-level panel dataset from 2014 to 2020. The risk of extremely hypocritical ESG disclosures greatly matters to sustainable growth. Empirical evidence indicates that the development of green finance can play an effective role in motivating ESG performance by mitigating firms' reactions in alleviating greenwashing. We find evidence supporting moderating effects of green finance on increasing firms' green innovation activities, profitability, and reducing financial constraints level. In addition, the improvement effect of green finance on corporate greenwashing performance is more pronounced in state-owned firms, pollution-intensive firms, and firms with a higher level of environmental regulation than publicly listed corporations. Overall, this paper provides a timely assessment of the social value of green finance in emerging markets with a novel connection to ESG.

Digital investment and environmental performance: The mediating roles of production efficiency and green innovation

Although digital investment is expected to achieve a win-win condition of economic growth and environmental conservation, little is known about the processes through which it improves environmental performance. Drawing on the natural resource-based view, this study explores how digital investment can affect environmental performance through the mediating roles of production efficiency and green innovation. Using a sample of 273 Chinese pollution-intensive firms with 1009 observations over the period 2016–2020, this study provides robust evidence that digital investment can improve environmental performance, and that production efficiency and green innovation play partially mediating roles in the above relationship. A heterogeneity analysis shows that the positive role of digital investment on environmental performance is only significant in state-owned firms and heavy industrial firms but not in private firms and light industrial firms. Interestingly, the environmental impact of digital investment in heavy industrial firms is achieved by improving efficiency, while in state-owned firms, both production efficiency and green innovation play a mediating role. The findings suggest how both managers and policy makers can leverage digital investment to achieve sustainable development in the industry 4.0 era.

Does emission trading system lead to reverse investment leakage: Evidence from Chinese listed firms

Carbon leakage through investment caused by emission trading system (ETS) is of great concern because it would affect the emissions-reduction effects of ETS. However, the existing literature mainly focuses on the forward investment leakage caused by ETS but has not studied its reverse investment leakage. This paper constructs a theoretical model to reveal the influence and mechanism of ETS on the reverse investment leakage of unregulated pollution-intensive firms. We adopted the staggered difference-in-differences (DID) and difference-in-difference-in-differences (DDD) models to empirically test the research hypotheses proposed in the theoretical model, coupled with the firm-province-year level data from 2004 to 2021. We obtained the following results. First, Chinese regional emission trading systems (ETSs) reduce the number of new subsidiaries of unregulated pollution-intensive firms in the ETS areas by 35.5 %, causing significant negative reverse investment leakage. Second, the ETSs inhibit firm investment through two channels: emission cost and emission risk. Third, Chinese ETSs have a stronger investment inhibition effect on firms with higher profitability, firms with higher innovation input and small firms, as well as industries with lower carbon-intensity and industries with higher concentration. Fourth, the ETSs in Beijing, Shanghai, Tianjin, Guangdong, and Fujian have a significant investment inhibition effect, while the ETSs in Chongqing and Tianjin do not. It is suggested that Chinese ETSs and other ETSs in the world take full account of reverse investment leakage. Governments in China's ETS regions should formulate differentiated anti-leakage measures, incorporate more enterprises into carbon management, and actively improve green innovation capabilities in ETS regions.

The impact of environmental regulation on firms’ energy-environment efficiency: Concurrent discussion of policy tool heterogeneity

• Environmental regulations can improve energy-environment efficiency of firms. • Environmental policies have asymmetric impact on heterogeneous firms. • End treatment and source control are important channels for improving efficiency. • Impact of different policy tools on energy-environment efficiency is heterogeneous. • Micro evidence for evaluating the effect of environmental regulation is provided. Energy-environment efficiency can be used as a means of control to change the mode of economic development by considering the pollution reduction factor. Taking China as an example, this study uses a nonradial superefficiency data envelopment analysis method to measure microlevel energy-environment efficiency and investigates the relationship between environmental regulation and efficiency. The findings show that for every 1% increase in environmental regulation, firms’ energy-environment efficiency increases by approximately 0.04% and that environmental regulations have a greater impact on pollution-intensive firms and private firms compared to other types of firms. A median effect model shows that end treatment and source control are important channels through which environmental regulation can improve firms’ energy-environment efficiency. In addition, the influence of different environmental regulation policy tools on firm energy-environment efficiency is heterogeneous. With every 1% increase in a command-and-control and market-based incentive policy, energy-environment efficiency increases by 0.01–0.02%, while the effect of public participation policy tools is not significant. This study provides not only new micro empirical evidence for evaluating the effect of environmental regulation but also a reference for applying and coordinating different types of environmental policy tools.

Is the environment a victim of the economic downturn? Evidence from China's manufacturing firms

AbstractThis paper investigates whether pollution-intensive industries develop faster in a time of economic downturn. Using firm-level panel data from 2005 to 2013, we find supporting empirical results in an analysis of China's manufacturing industries in the 2008 economic crisis. We find that pollution-intensive firms tended to produce more compared with non-pollution-intensive firms in the 2008 economic crisis, with the pre-crisis period as a baseline. We further find that this effect is more pronounced in areas with higher export dependence and a smaller proportion of production from pollution-intensive industries. The relatively faster production expansion in pollution-intensive industries is more evident for state-owned enterprises.

Relocate or Innovate? The Impact of Environmental Regulation Stringency on Pollution-Intensive Firms in China

Relocate or Innovate? The Impact of Environmental Regulation Stringency on Pollution-Intensive Firms in China

The Impact of Heterogeneous Environmental Regulations on Location Choices of Pollution-Intensive Firms in China

The spatial transfer pattern and dynamic mechanisms of pollution-intensive industries are key issues for national and regional sustainable development. Although previous studies have emphasized the impact of environmental regulations on the transfer of pollution industries, there is a lack of firm-level analysis of the combined effects of different types of environmental regulations and other factors on them, which has led to the pollution haven hypothesis remaining contested. In order to provide micro evidence to test the pollution haven hypothesis, this paper reveals the temporal and spatial evolution of pollution-intensive foreign firms’ distribution in China, and explores the impact of heterogeneous environmental regulations on the location choices by using spatial analysis and zero-inflated negative binomial regression. The empirical results were as follows: Firstly, pollution-intensive foreign firms were highly concentrated in the eastern developed region and have a strong path dependency in China. Secondly, environmental regulations, especially the market-based environmental regulation, had a significant negative impact on the location choices of pollution-intensive foreign firms. Thirdly, the spatial distribution of pollution-intensive foreign firms was strongly influenced by new economic and geographic factors. Fourthly, pollution-intensive foreign firms have a significant pollution border effects in developed regions but not in economically less-developed regions due to transportation costs. The governments are expected to adopt heterogeneous environmental regulations based on the level of regional economic development to avoid the pollution haven phenomenon, thus achieving a sustainable development.

Spatial Heterogeneity of China’s Environmental Regulation on Industrial Pollution: Evidence from a Top–Down Environmental Enforcement Action

To obtain precise information about enterprises’ pollution control and take corresponding environmental protection measures is the key to preventing and controlling industrial pollution. Taking the lead–acid battery industry as an example, this paper employs data from the Environmental Enforcement Action to analyze the urban–rural and inter-provincial distributions of pollution-intensive enterprises and to quantitatively verify the spatial differences in China’s environmental regulation on industrial pollution. The study finds that lead–acid battery manufacturing enterprises are mainly located in rural areas instead of urban areas; most pollution-intensive firms located in industrial parks, especially those approved by governments below the provincial level. The multivariate logistic model analysis finds that environmental regulation in urban districts is more strict than that in towns and villages, while the suburban areas are the laxest; environmental regulation in national-level development zones is more strict than that in provincial-level development zones, while zones below the provincial level are the laxest. In general, the environmental regulation is stricter in urban areas than in rural areas, and stricter in clustered space than in scattered space, while most inter-provincial environmental regulations have no significant differences. Local governments should effectively allocate conventional environmental law enforcement resources and shift the focus of law enforcement downwards to parks below the provincial level, and on suburbs and townships.

How does venture capital spur the innovation of environmentally friendly firms? Evidence from China

Previous literature has discussed the relationship between venture capital (VC) and green innovation; however, green innovation is seldom noted as having been created by both environmentally friendly and pollution-intensive firms, even though most VCs are actually invested only in environmentally friendly firms. Thus, this study focuses on the relationship between VC and the green innovation of environmentally friendly firms. The analysis combines traditional patent data with homogenous citation data to jointly examine the quantity and quality of VC-funded firms' green innovation. Results suggest that VC support not only improves firms' success rate of patent application but also increases the innovation “value” represented by increased citation. The Chinese government has asked government VC (GVC) to be a long-term strategic investment for environmentally friendly firms. However, we found that GVC negatively affects green innovation, which may be caused by the risk aversion and adverse selection of the GVC manager. By comparing the roles of experienced foreign VC and full-sample VC, we confirmed that the investment skills of developed countries could enhance the quantity and quality of green innovation in China.

The Impact of Environmental Regulation on the Location of Pollution-Intensive Industries in China under Agglomeration Effect.

Pollution-intensive industries (PIIs) have both scale effect and environmental sensitivity. Therefore, this paper studies how environmental regulation (ER) affects the location dynamics of PIIs under the agglomeration effect. Our results show that, ER can increase the production costs of pollution-intensive firms (PIFs) by internalizing the negative impact of pollutant discharge in a region, and thus, directly reduces the region’s attractiveness to PIFs. Meanwhile, ER can indirectly reduce the attractiveness of a region to PIFs by reducing the externality of the regional agglomeration effect. Moreover, these influences are regulated by the level of local economic development. Based on the moderated mediating effect model, we find evidence from the site selection activities of newly built chemical firms in cities across China. The empirical test shows that compared with 2014, the proportion of the direct effect of ER to the total effects significantly decreased in 2018, while the proportion of indirect effects under the agglomeration effect increased significantly. Our findings provide reference for the government to design effective environmental policies to guide the location choice of new PIFs.

Measuring technical efficiency and shadow price of water pollutants for the leather industry in India: a directional distance function approach

This paper measures the cost of reducing pollution from the Kanpur leather industry which is a prime source of pollution in India’s largest river basin of Ganges. The study uses directional distance function approach to examine the efficiency of leather firms in abating two undesirable pollutants (total suspended solids and chromium) while expanding the desirable leather output, and provides robust estimates of the marginal abatement cost for different production and pollution abatement strategies. The study is based on the primary data collected for 61 firms in Kanpur leather cluster for the year 2016. The results show that leather firms are technically inefficient and incur high abatement cost under the existing command and control regulations. The least inefficient strategy is a balanced policy that allows firms to reduce pollution without compromising their goal of output expansion. The study finds that old, small and more pollution intensive firms can abate pollution at least cost under a market-based regime. The shadow price of pollutants estimated in this paper are useful tools in determining equilibrium discharge permit price for design of market-based instruments.

The spillover effects of China’s regional environmental markets to local listed firms: a risk Granger causality approach

Using the quantile GARCH model estimators to gauge the bidirectional risk magnitude and the Granger causality test in risk distributions to detect the existence of risk spillovers, this paper explores the extreme risk spillovers of China's regional carbon markets to local listed firm's stock returns. From the perspectives of macro region level and micro firm level, the findings are outlined as follows. First, among the top three active carbon trading pilots (Hubei, Guangdong, and Shenzhen), Hubei pilot exhibits significant "low risk and high profit" features. Second, the predominant risk spillover effects to local listed firms are heterogeneous across pilots. Specifically, Hubei pilot is dominated by "up-to-down" effect, and Guangdong pilot is dominated by "down-to-down" effect, while Shenzhen pilot has no predominant effect. The heterogeneous risk spillover performance may be caused by the regional divergence in economic development, industry structure, and cap setting concerning each pilot. Third, the risk transmission performance from carbon allowance price to local listed firm's stock returns depends on the firm's belonging sector. That is, environment-related firms, either environment-friendly firms or pollution-intensive firms, are more susceptible to carbon markets' risks compared with environment-unrelated firms. This paper supplies novel information on the risk transmission from carbon markets to local economic entities, which proves valuable not only for firms to improve risk aversion ability but also for policy-makers to perfect carbon markets' mechanism.

Default Risk, Productivity, and the Environment: Theory and Evidence from U.S. Manufacturing

This paper employs a general equilibrium model with heterogeneous firms to analyze the effect of default risk on production-generated pollution emissions. The model analytically divides the effect of default risk into three distinct effects: the market-size, technology-upgrading, and selection effect. Conceptually, an increase in default risk raises equilibrium borrowing costs, thereby precluding investment in a technology upgrade among a subset of firms (technology-upgrading effect). As a consequence, the economy consists of more numerous (market-size effect) but less productive and more pollution-intensive firms (selection effect). Because the effects are confounding in nature, the effect of default risk on aggregate pollution emissions and emissions intensity is an empirical question. To answer this question, this paper estimates the model’s key parameters using a unique dataset with establishment-level credit scores and a composite measure of pollution emissions for a panel of manufacturing firms in the United States. Using a two-step procedure where default risk is estimated in the first stage, the results indicate that the estimated elasticity of emissions intensity and productivity with respect to default risk is 0.89 and − 0.16, respectively. Next, I use the theoretical model to leverage the coefficient estimates to estimate the effect of economy-wide default risk on aggregate pollution emissions, demonstrating that default risk increases aggregate emissions and emissions intensity, primarily as a consequence of the technology-upgrading effect. Finally, this paper demonstrates that historical changes in economy-wide default risk can generate economically significant changes in pollution emissions.

Relocate or Innovate? The Impact of Environmental Regulation Stringency on Pollution-Intensive Firms in China

This paper assesses the impact of environmental regulation stringency on the relocation of pollution-intensive firms in China. Pollution haven hypothesis (Porter theory) suggests that firms would (not) choose to relocate (but to innovate). We proxy the regulation stringency with multidimensional institutional capacity and construct an index by using the entropy method and find that stringency reduces the number and growth rate of pollution-intensive firms in highly regulated regions, especially these in heavy industries. An important channel for stringent regulations to hold back firm creation is the increased financing cost. Stringent regulations are not found to promote technology innovation presumably because relocation is less costly. Overall, the results support pollution haven hypothesis.

How does ecology of finance affect financial constraints? Empirical evidence from Chinese listed energy- and pollution-intensive companies

Abstract Investment and financing are crucial for the healthy development of modern enterprises. A series of recent studies have examined various influential factors of financial constraints of enterprises, but few researchers have incorporated the influential factors simultaneously. This study introduces the term ecology of finance as a synthesized indicator to measure the influences of a series of variables that may affect financial constraints simultaneously. Using the data of Chinese A-share listed energy- and pollution-intensive firms from 2007 to 2017, how and to what extent the ecology of finance affects financial constraints is quantitatively investigated. The main finding of this research is threefold. First, good internal ecology of finance can relieve the financial constraints of high-polluted and high energy consumption firms, and improved external ecology of finance intensifies the financial constraints. Second, firms with high-level internal ecology of finance are more sensitive to the change in external ecology of finance. Third, firms with a lower level of external ecology of finance are affected more by the change in internal ecology of finance. This study provides insights on how to formulate appropriate policies and regulations for energy- and pollution-intensive companies to relieve their financial constraints and improve their environmental performance.

Influence of environmental regulation on promoting the low-carbon transformation of China’s foreign trade: Based on the dual margin of export enterprise

Abstract Environmental protection and international trade are main issues related to human development and well-being. Under the dual pressure of pollution control and foreign trade restructuring, environmental regulation is essential for achieving results in environmental protection and trade transformation. This study analyzes the influences of environmental regulation on the low-carbon transformation of China’ foreign trade from the perspective of export enterprises’ dual margin. Under the framework of profit maximization, this study establishes a simplified dynamic discrete choice model to study the two-stage decision-making process of export enterprises and the role of environmental regulation. Based on data from Chinese industrial enterprises, this study uses the Heckman model to evaluate the impact of environmental regulation on trade volume and structure. Our principal conclusions are as follows. First, environmental regulation may restrain the export-extensive and -intensive margin, where the negative effect on pollution-intensive enterprises is stronger than that of clean ones. Second, the type of ownership may affect the effectiveness of environmental regulation. In addition, survival analysis shows that environmental regulation will shorten the export duration for enterprises, especially for pollution-intensive ones. Results show that the negative effect of environmental regulation on pollution-intensive firms is stronger than that on clean enterprises. Therefore, government departments in China should improve and develop environmental policies and further strengthen environmental monitoring capabilities to achieve the structural adjustment and low-carbon transformation of China’s foreign trade.

Pollution haven or porter? The impact of environmental regulation on location choices of pollution-intensive firms in China

Using firm establishment-level data combined with provincial socio-economic characteristic panel data in China for the period of 2011–2015, this study seeks to empirically examine the impact of environmental regulation on location choices of polluting firms. The results of the conditional logit model provide compelling evidence that environmental regulations do affect the location choice of firms in polluting industries. Instead of supporting the pollution haven effect, our results consistently confirm the Porter effect at the country level. This result is robust when taking endogeneity problem into account, adopting various model specifications and estimation strategies, using alternative measurements of environmental regulation and location choices, and subsampling excluding international political events. However, the results also show divergent effect of environmental regulation on location choices for heterogeneous firms. Specifically, polluting firms in eastern region prefer to invest in provinces with stringent environmental policies but those in other regions, especially in northeastern region, choose to locate in provinces with lax environmental regulation. While water-dependent polluting firms with a low level of footlooseness are more likely to enter locations with loose environmental regulation, air pollution-intensive firms tend to locate in provinces with tight environmental legislation. These results have policy implications for transitional China as well as other developing countries with similar experience.