Environmental judicial independence and corporate investment efficiency: Evidence from a quasi-natural experiment in China

Lianchao Yu, Haobin Sha, Qiang Liu and Guowan Yan

International Review of Economics & Finance, 2024, vol. 96, issue PA

Abstract: This study investigates the influence of environmental judicial independence on corporate investment efficiency, utilizing the staggered establishment of environmental courts in China as a natural experiment. Our findings indicate that the establishment of environmental courts improves corporate investment efficiency mainly by reducing overinvestment, rather than addressing underinvestment. Channel analysis demonstrates that the establishment of environmental courts raises the risk of environmental litigation, subsequently lowering agency costs through enhanced management oversight, and intensifying financing constraints imposed by financial institutions, thereby enhancing corporate investment efficiency. Cross-sectional analyses indicate that this effect is more pronounced in regions with inadequate legal environment, weak environmental regulation, and among firms with poor environmental management and performance. Collectively, this study highlights the importance of environmental judicial independence and underscores the vital role of the environmental judicial system in improving the efficiency of capital allocation among firms.

Keywords: Environment courts; Environmental judicial independence; Environmental litigation risk; Corporate investment efficiency (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:96:y:2024:i:pa:s1059056024006385

DOI: 10.1016/j.iref.2024.103646

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