Can Environmental Regulation Flexibility Explain the Porter Hypothesis?—An Empirical Study Based on the Data of China’s Listed Enterprises

Abstract

Previous studies indicate that the Porter hypothesis (PH) generates controversial and inconsistent conclusions on the impact of environmental regulation (ER) on business performance. As a result, based on the data of China’s A-share listed companies from 2016 to 2018, a moderated mediating effect model is established to examine the relationship between ER, technological innovation and business performance, as well as the moderating effect of environmental regulation flexibility (ERF) on the relationship. Results show that technological innovation has a significant mediating effect on the relationship between ER and business performance. Furthermore, ERF has a negative moderating effect on the mediating effect technological innovation exerted. At a certain degree, the flexible ER could weaken technological innovation’s mediating effects on the relationship between ER and business performance, and further could mitigate the negative impact of ER on both technological innovation and business performance. Also, an inflexible ER intensifies its negative effects on technological innovation and business performance, which is to the disadvantage of enterprises becoming the subject of environmental protection consciously and sustainably.

Environmental Regulation, Environmental Commitment, Sustainability Exploration/Exploitation Innovation, and Firm Sustainable Development

“…As one of the effective ways for governments to manage firms' environmental behaviors, EREG plays a key role in limiting the harmful effects of economic activity on the natural environment [22,25]. At the same time, EREG that is flexible and properly designed is more likely to help firms establish low-cost and other differentiated competitive edges [2,4,5]. Thus, proper EREG is a crucial driver for private firms to improve firms' environmental performance (FEPER) and business performance (FBPER) [6,21].…”

“…The dominant mode of economic growth at present has led to an enormous consumption of materials and energy that triggers the large-size pollutants emission, which has intensified the conflict between environmental protection and economic development. To alleviate this dilemma, governments worldwide broadly developed environmental regulation (EREG) tools [1,2]. However, EREG is seen as a passive and compulsory mechanism that is likely to increase firms' environmental management costs, thus bringing a negative effect on firm performance [3].…”

“…Another important discussion on the validity of Porter Hypothesis is that the roles of some key factors in firms have not been identified, e.g., firms' capability and innovation modes [21]. It has been suggested that the mechanism and specific effect of EREG in firms through different types of innovations need to be investigated in micro perspectives [2,3]. Additionally, some studies indicated that firms' environmental commitment (ECOM) can effectively transform the external pressure into their innovation behaviors [22].…”

Does China’s Pollution Levy Standards Reform Promote Green Growth?

“…Following with the existing literature, this section discusses the two direct mechanisms of EFFCH and TECH, aiming to discover whether PSR affects GTFP through EFFCH or TECH. Therefore, we replaced the dependent variable in Equation (7) with EFFCH and TECH to analyze whether PSR affects EFFCH and TECH, with the regression results shown in Table 6; Table 7. Table 6.…”

“…Flexible environmental regulations could weaken the mediating effects of technological innovation on the relationship between environmental regulation and business performance. They could also mitigate the negative impact of environmental regulation on both technological innovation and business performance [7]. In recent years, there have been many supporters of the Porter Hypothesis [8][9][10][11].…”