Environmental regulation, total factor productivity, and enterprise duration: Evidence from China

Abstract

Environmental regulation has been confirmed to have an important impact on enterprise productivity, which is regarded as a crucial factor of enterprise duration. However, existing studies have paid little attention to how environmental regulation affects enterprise duration. Using firm‐level data from the Chinese Industrial Enterprises Database (2003–2007) and the stochastic frontier analysis method, we estimate enterprise total factor productivity (TFP) and its four decomposed components (scale efficiency change, technological change, factor allocation efficiency change, and technical efficiency change). Meanwhile, we adopt a comprehensive index to measure the environmental regulation intensity. Furthermore, we use the linear probability model and the proportional hazards model to investigate the effect of environmental regulation on enterprise duration through the mediating role of enterprise TFP. The results show that although environmental regulation per se negatively impacts on enterprise duration, environmental regulation can present a synthetic positive effect on enterprise duration due to its positive effect on enterprise TFP. Specifically, environmental regulation significantly mitigates the scale efficiency and technical efficiency of regulated enterprises. It also stimulates regulated enterprises' technological innovation and improves their factor allocation efficiency. In addition, state‐owned and large‐scale enterprises are more malleable when facing environmental regulations. We propose that the government should encourage enterprises to innovate and improve the allocation efficiency of production factors, so as to achieve the purpose of controlling environmental pollution in stages while extending enterprise duration.

Can environmental investments benefit environmental performance? The moderating roles of institutional environment and foreign direct investment

“…Over the past 40 years, China has made remarkable achievements in economic development. However, the environmental problems caused by the rapid economic development are still serious (Ai, Hu, Li, & Shao, 2020; Kong, Yang, Liu, & Yang, 2020). According to the 2018 Bulletin of China's Ecological Environment issued by the Ministry of Ecology and Environment, among 338 prefecture‐level cities, only 121 cities met the air quality standards, accounting for 35.8% of the total number despite a 6.5% rise compared with that in 2017.…”

Business‐oriented environmental regulation: Measurement and implications for environmental policy and business strategy from a sustainable development perspective

“…Not only will this measurement system be useful for improving environmental policy but also in helping firms improve performance by complying with regulations while at the same time improving their business strategies and ameliorating conditions for society (Ai, Hu, Li, & Shao, 2020). This also includes integrating the principles of sustainable development into business strategies that affect the attitudes and behavior of the members of an organization and the community (Carballo & Castromán, 2014).…”

Do environmental regulations hamper small enterprises' market entry? Evidence from China

“…Considering that stringent environmental regulations can increase the pollution control costs of enterprises, pollution control costs can therefore be used to effectively reflect the intensity of environmental regulations faced by enterprises. Therefore, this study adopts the third indicator, which has been adopted by many previous studies (Ai et al, 2020; Shao et al, 2020).…”

“…These increased costs are not conducive to economic growth (Barbera & McConnell, 1990; Freeman, Haveman, & Kneese, 1973; Gollop & Roberts, 1983; Jaffe & Palmer, 1997). Generating new compliance costs can directly cause a decline in enterprises' profit margins and productivity (Ai, Hu, Li, & Shao, 2020). These compliance costs may indirectly occupy funds that would have been used for other productive and profitable investments, thus hampering the production capacity and profitability of enterprises, and ultimately reducing enterprise competitiveness (Walley & Whitehead, 1994).…”