Environmental regulation and corporate financial asset allocation: A natural experiment from the new environmental protection law in China

Xing Liu and Fengzhong Liu

Finance Research Letters, 2022, vol. 47, issue PA

Abstract: Taking the implementation of the new environmental protection law in 2015 as a quasi-natural experiment, we use the difference-in-differences (DID) approach to investigate the impact of stringent environmental regulation on financial asset investment of high polluting firms. We find robust evidence that the new environmental protection law has a negative effect on corporate investment in financial assets. The effect works by increasing corporate environmental protection investment. Furthermore, we find that the negative effect of the new environmental protection law on financial investments of high polluting firms is more pronounced for small-scale firms, firms in industries with greater competition, and firms in regions with good legal environment. Overall, this study complements the existing literature by illustrating how strict environmental regulation affects corporate financial policies.

Keywords: Environmental regulation; Financial investment; Financial policies (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612322002239

DOI: 10.1016/j.frl.2022.102974

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