Environmental Regulation and Corporate Financing—Quasi-Natural Experiment Evidence from China

Abstract

The Environmental Protection Law, which includes 70 articles and major changes in six aspects compared to the old law, is called in Chinese society the new Environment Protection Law. When the law was implemented in 2014, it was an important event in China that could be seen as a natural experiment. Based on a difference-in-differences model, this paper considers all of the listed heavily polluting enterprises between 2011 and 2016 as the experimental group and all of the other firms in the same industries listed on the Chinese stock market as the control group and examines the impact of the new Environmental Protection Law on the corporate financing of heavily polluting enterprises and its mechanisms. The results show that the strict environmental law caused Chinese listed enterprises to face higher environmental regulation costs, public pressure and environmental litigation. The financing capacity of heavily polluting enterprises has dropped significantly, especially in areas with higher regulatory intensity. Furthermore, since the new Environmental Protection Law was established, overinvestment by China’s heavily polluting enterprises has been significantly inhibited, and the decline in financing capacity exerts a mediating effect. The ultimate economic consequences of the new Environmental Protection Law are to decrease the corporate value of heavily polluting industries.

Promoting or Inhibiting? The Impact of Environmental Regulation on Corporate Financial Performance—An Empirical Analysis Based on China

“…This section provides a description of the empirical data, main variables and econometric model. We construct an empirical model to examine the relationship between environmental regulation and enterprises' financial performance via the difference in difference (DID) model by summarizing models on environmental regulation and policy evaluation [81][82][83]. To further analyze the impact of environmental regulation intensity on enterprises' financial performance, we also introduce the fixed effects (FE) model for analysis.…”

Green Credit, Debt Maturity, and Corporate Investment—Evidence from China

“…Actively promoting green development with the goal of PM2.5 governance has become a trend for the future. However, the use of GDP in performance appraisals has shifted, and the environmental protection pressure faced by heavily polluting enterprises has further increased [13]. Second, in terms of financial support, the concepts of "green credit" and "green finance" and related policies have been promulgated.…”

“…The green credit policy will also affect the investment scale and investment efficiency of heavily polluting enterprises. First, with the introduction of the Green Credit Guidelines policy, heavily polluting enterprises must face more stringent environmental assessments and audits by raising funds through bank lending [13]. Therefore, the capital adequacy of heavily polluting enterprises could be much lower than before the policy.…”

Spatial Effects of Environmental Regulation and Green Credits on Green Technology Innovation under Low-Carbon Economy Background Conditions

“…Guo et al [23] test whether there is a significant” U-shaped” relationship between ER and GTI, and found that there exists an “inflection point” in the role of environmental regulation in GTI, and China is at the stage of inhibition before the “inflection point”. The strict environmental law caused Chinese listed enterprises to face higher environmental regulation costs, public pressure and environmental litigation and the financing capacity of heavily polluting enterprises has dropped significantly, especially in areas with higher regulatory intensity [24]. The intensity of environmental regulation in different regions has different effects on the development of green technology innovation.…”