Long‐term economic consequences of corporate environmental responsibility: Evidence from heavily polluting listed companies in China

Abstract

In this study, we aim to investigate the long‐term economic consequences of corporate environmental responsibility (CER) by companies from the perspective of earnings persistence and investors' response. Based on firm‐level data of 1,010 heavily polluting listed companies in China, the empirical results are as follows. First, the CER of China's heavily polluting listed companies has significantly improved their earnings persistence, that is, earnings quality. Second, the positive long‐term economic effect of CER has been achieved through two paths: improving companies' operational efficiency and reducing their credit costs. Third, CER increases investors' response to heavily polluting companies' accounting earnings. Moreover, state‐owned listed companies achieve more significant positive long‐term economic effects from CER than others. The results suggest that heavily polluting companies should correctly identify the long‐term value of CER rather than pay excessive attention to the impact of CER on their current costs and benefits.

Carbon Emission Regulation, Green Boards, and Corporate Environmental Responsibility

“…A strand of studies has shown that being environmentally responsible positively affects firm performance [32][33][34][35][36][37][38][39][40][41][42][43][44], and innovation [45]. For instance, Deng and Cheng (2019) [41] find that CER and stock market performance has a positive correlation.…”

The Pitfall of Selective Environmental Information Disclosure on Stock Price Crash Risk: Evidence From Polluting Listed Companies in China

“…Text content analysis is a very popular method of collecting environmental information from relevant reports. Given that China's listed companies are all required to disclose their annual social responsibility reports, this study adopts the method of text analysis to measure the quality of enterprise EID (Chen et al, 2018;Xu et al, 2020). Specifically, the quality of corporate's environmental information disclosure is measured by the number of items of environmental information disclosed in the corporate social responsibility report.…”

“…EID transfers the legitimacy of enterprises to the public, reduces the investment risk of external shareholders, and ultimately improves the financing ability of enterprises (Dhaliwal et al, 2011). Moreover, EID makes it easier for polluters to obtain green credit and reduce the cost of credit (Liu and Anbumozhi, 2009;Xu et al, 2020). Therefore, EID can further improve the financing ability of polluting enterprises (Wu et al, 2017).…”

Environmental Regulation, Enterprises' Bargaining Power, and Enterprises' Total Factor Productivity: Evidence from China

“…Environmental regulation, when improving environmental performance, inevitably affects activities such as resource reallocation, capital investment and technological innovation in the production process of rms (Albrizio et al 2017), which in turn affects enterprises' TFP. On the one hand, enterprises that comply with environmental regulation are more likely to get preferential measures such as nance, tax, price and government procurement (Xu et al 2020), which will provide essential guarantee for the growth of TFP. On the other hand, environmental regulation provides necessary external conditions for enterprises to improve production e ciency.…”