Exacerbate or alleviate? The new environmental protection law and corporate over-financialization

Jiayu Xie, Shanyong Wang () and Haidong Li
Additional contact information
Jiayu Xie: University of Science and Technology of China
Shanyong Wang: University of Science and Technology of China
Haidong Li: University of Science and Technology of China

Economic Change and Restructuring, 2025, vol. 58, issue 4, No 18, 30 pages

Abstract: Abstract While environmental enforcement and market-oriented environmental regulation influence corporate over-financialization, the role of command-and-control environmental regulation (CAC) remains unexplored. Utilizing a double machine learning model, and treating China’s new environmental protection law (NEPL) enforced in 2015 as a quasi-natural experiment, we examine how CAC affects the over-financialization of heavily polluting firms. The result finds that NEPL significantly alleviates corporate over-financialization, supporting the deterrent effect. Mechanism analyses reveal that NEPL inhibits over-financialization by restraining managerial myopia and boosting green investments. Moreover, the negative effect of NEPL is more pronounced for firms with green investors, more public concern, and higher financing constraints, while firms with political connections are not dramatically affected. Notably, further analysis demonstrates broader economic benefits: NEPL effectively enhances total factor productivity by an average of 3.74% in highly over-financialized firms with severe resource misallocation. Our findings suggest that CAC carries unintended spillover effects on preventing financial risks and rationalizing resource allocation, providing new evidence for the Porter hypothesis.

Keywords: The new environmental protection law; Corporate over-financialization; Managerial myopia; Green investments; Total factor productivity; Double machine learning model (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10644-025-09907-x Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:ecopln:v:58:y:2025:i:4:d:10.1007_s10644-025-09907-x

Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/10644/PS2

DOI: 10.1007/s10644-025-09907-x

Access Statistics for this article

Economic Change and Restructuring is currently edited by George Hondroyiannis

More articles in Economic Change and Restructuring from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().