Environmental Credit Constraints and the Enterprise Choice of Environmental Protection Behavior

Abstract

Choosing appropriate environmental protection strategies is important in improving enterprises’ economic and environmental performance. Based on the data of A-share listed enterprises from 2009 to 2019 in China, this paper uses the difference-in-differences model to identify the effects of environmental credit constraints on the enterprise choice of environmental protection behavior. We find that environmental credit constraints motivate some enterprises to choose active environmental behavior due to the incentive effect of environmental credit constraints on R&D investments. However, some enterprises may adopt evasive strategies because environmental credit constraints increase production costs and debt. State-owned enterprises prefer active environmental protection strategies to address environmental credit constraints, while private enterprises mainly adopt evasive strategies. Environmental credit constraints make high-interest and high-profitability enterprises choose active environmental strategies. Environmental credit constraints generated by enterprises’ evasive environmental behavior increase the probability of litigation and arbitration cases, and environmental credit system construction in the short term may exacerbate unemployment, which the government needs to pay attention to when developing and implementing a blacklist system for environmental fraud. Although there are limitations in this paper in terms of research objectives and samples, the results are important for improving the environmental management system and the operating performance of enterprises.

The effect of environmental credit rating on audit fees: A quasi-natural experiment from China

“…Furthermore, some studies examine the environmental effectiveness of ECR based on empirical data. Yan et al (2023) identified the effect of ECR on enterprises' environmental choice behaviour, finding that although environmental credit constraints could motivate enterprises to choose more active environmental behaviour and promote green innovation, some enterprises might also adopt evasive strategies due to increasingly production costs and debt [ 25 ]. Zuo and Wu (2022) found that the ECR promoted heavily polluting enterprises’ green innovation through reputation mechanism and financing mechanisms [ 26 ].…”

“…Third is the principle of ‘lassified regulation’, Suppose an enterprise has a poor ECR rating result. In that case, it will face a series of punishments by the government (including but not limited to checking the applications for environmental administrative licence, increasing the environmental supervision, and suspending the environmental subsidies) and diversified quasi-regulatory pressures, such as stricter credit risk assessment from banks, negative environmental reports from media and more widespread public attention [ 25 , 37 ].…”

“…Due to the higher environmental risks, auditors must carry out more audit procedures and bear the higher risk of audit failure [ 60 ]. The compliance constraint effect and the incentive and guidance effect of the environmental credit evaluation policy will improve environmental information disclosure and achieve sustainable growth of enterprises [ 25 , 26 , 37 ], which can help weaken the negative impact of clients’ environmental risks on the risk perception of auditors. Therefore, we conjecture that the ECR can mitigate the environmental risks, thereby reducing audit fees from the following two aspects.…”

“…First, the government will provide tax relief, environmental subsidies and government procurement to enhance their competitiveness according to the results of ECR [ 26 ]. Second, the government encourages the banks to fully implement a green credit policy, which is conducive to improving availability, reducing costs and alleviating the constraints of financing [ 25 ]. Zhu and Wu (2022) found that the ECR improves the green innovation of heavily polluting enterprises due to the better financing mechanism, thus enhancing sustainable development ability [ 26 ].…”

“…At the end of 2013, the former Ministry of Environmental Protection of China and three other departments of the State Council of China jointly issued the Measures for Enterprise Environmental Credit Evaluation (Trial) (hereafter, evaluation measures ), which indicated that the Chinese government would implement the environmental credit evaluation policy. The environmental credit rating (ECR) is primarily used to evaluate and publicise the credit rating of enterprises' environmental behaviours to provide a decision-making reference for environmental stakeholders [ 25 , 26 ]. ECR is a new measure that deeply integrates the construction of ecological civilisation and social credit system and is suitable for establishing and improving the long-term mechanism of ‘trustworthy incentive and dishonesty punishment’.…”