To pollute or not to pollute: Political connections and corporate environmental performance

Gang Xiao and Sichen Shen

Journal of Corporate Finance, 2022, vol. 74, issue C

Abstract: We examine the influence of political connections on firms' environmental performance within the setting of China's Regulation 18, which prohibits government officials from taking business positions. Firms that lost political connections due to Regulation 18 experienced increases in environmental performance. This improvement is mainly driven by the tunneling channel rather than the sheltering channel. Specifically, we decompose the environmental ratings into strengths and concerns, and find the effect is stronger on strengths. The environmental improvements are more pronounced for firms with a higher degree of tunneling, and are value-enhancing. Our findings suggest that political connections impede firms' environmental performance and generate negative externality to the environment.

Keywords: Environmental performance; Political connection; Regulation 18; Tunneling; Sheltering (search for similar items in EconPapers)
JEL-codes: G3 G38 Q5 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:74:y:2022:i:c:s0929119922000578

DOI: 10.1016/j.jcorpfin.2022.102214

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