New environmental protection law, polluting enterprises and capital structure: A dynamic analysis

Nianling Wang, Jiacheng Song and Zichen Chao

International Review of Financial Analysis, 2025, vol. 107, issue C

Abstract: This study investigates the effect of environmental regulation on corporate capital structure from a dynamic perspective, using the enactment of China's new Environmental Protection Law (new EPL) in year 2015 as a quasi-natural experiment. The findings reveal that the implementation of the new EPL significantly reduces the asset-liability ratios of heavily polluting enterprises, and the effect is stronger in the long term than that in the short term. Furthermore, the policy effects exhibit heterogeneity: The law's impact on capital structure is stronger for small-scale enterprises and enterprises in China's eastern and western regions. Additional analysis indicates that decreased operational efficiency and improved profitability serve as short-term and long-term channels, respectively, through which the new EPL affects corporate capital structure.

Keywords: New environmental protection law; Capital structure; Difference in difference; Operational efficiency; Profitability (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:107:y:2025:i:c:s1057521925007021

DOI: 10.1016/j.irfa.2025.104615

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