Fine me if you can: Fixed asset intensity and enforcement of environmental regulations in China

Abstract

Why do some firms face more environmental regulatory actions than others? We present a theory focusing on firm-fixed asset intensity. High fixed asset intensity makes a firm less mobile. A less mobile firm cannot present a credible exit threat, making it more susceptible to stringent enforcement. Analysis of key-monitored firms in Jiangsu province, China of 2012-2014 shows that higher fixed asset intensity is associated with more pollution levies and a higher chance of receiving a punitive action. This result holds in a battery of robustness checks and an instrumental variable analysis. Furthermore, our 2018 online survey of Chinese firm managers shows that those from high fixed asset intensity firms indeed consider their firms less mobile and they pay more environment-related operating costs. Finally, data from 2004 Chinese Firm-Level Industrial Survey demonstrate that fixed asset intensity is positively associated with pollution levies in a national sample of 201,926 manufacturing firms.

Does Local Government Competition Reduce Environmental Governance Performance? The Role of Public Value Conflict and Media Sentiment

“…It follows that officials who serve the same province in different cities would compare themselves with their counterparts holding the same positions due to their geographical proximity, shared resources, and similar administrative attachment to the provincial government. Based on the previous review, this study contends that GDP growth is the core content of inter-governmental competition among China’s prefecture-level cities (Cao et al, 2022; Du & Yi, 2022; X. Li et al, 2019) and that competition pressure is determined both by the gap between oneself and the competitor (S.…”

“…Until today, there are still clear tensions and conflicts between economic development and environmental protection (Cao et al, 2022; Du & Yi, 2022; Guan, 2020; Zhang, 2021); as environmental regulations increase the cost of doing business, cut productivity, and discourage investment (Du & Yi, 2022). Meanwhile, industrial rectification and restructuring aimed at highly polluting industries will negatively impact economic growth.…”

“…Governments still have to bear the costs of economic transformation in the short term, and translating green technology innovations into significant economic outcomes greatly depends on long-term efforts (Du & Yi, 2022). Given that the tenure of local leaders in China is relatively short, with the average tenure of prefecture party secretaries being only 2.5 years (Cao et al, 2022), local governments in China are still faced with a difficult choice between protecting the environment and promoting economic growth at this stage (Du & Yi, 2022). In addition, one of the most problematic situations for local governments and one that the pollution haven hypothesis has confirmed, is that if local governments impose stricter environmental regulations, some enterprises will choose to relocate to surrounding areas with less stringent environmental regulations (Cao et al, 2022; Wu et al, 2017; Zhang, 2021).…”

“…Given that the tenure of local leaders in China is relatively short, with the average tenure of prefecture party secretaries being only 2.5 years (Cao et al, 2022), local governments in China are still faced with a difficult choice between protecting the environment and promoting economic growth at this stage (Du & Yi, 2022). In addition, one of the most problematic situations for local governments and one that the pollution haven hypothesis has confirmed, is that if local governments impose stricter environmental regulations, some enterprises will choose to relocate to surrounding areas with less stringent environmental regulations (Cao et al, 2022; Wu et al, 2017; Zhang, 2021). This will, in turn, lead to the flow of local factors of production and economic resources to rival regions, weakening their economic development and contributing to that of their competitors.…”

“…China’s Central Government has launched an “Environmental Protection Storm,” manifested by such policies as “Central Environmental Protection Inspector,” “Lifelong Accountability,” “Military Order,” and “Target Responsibility Contracts.” In the face of increasingly stringent supervision, it is undesirable for local governments to pursue competitive economic advantages and loosen environmental regulations blindly because the one-vote veto regime of the ecological environment will directly affect the promotion of local officials (Guan, 2020; Zhang, 2021), which is a high price for them to pay. Meanwhile, local governments are also unwilling to pursue strict environmental regulations blindly and cause themselves to lag in economic competition, which further lets their production factors flow into adjacent areas (Cao et al, 2022; Woods, 2006) and put themselves at risk of being surpassed by surrounding cities. In sum, local governments are in a dilemma at this stage.…”