Environmental Regulation and Corporate Financing—Quasi-Natural Experiment Evidence from China

Xinghe Liu, Enxian Wang and Danting Cai
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Xinghe Liu: School of Management, Xiamen University, Xiamen 361005, China
Enxian Wang: Institute for Financial and Accounting Studies, Xiamen University, Xiamen 361005, China
Danting Cai: School of Hotel and Tourism Management, the Hong Kong Polytechnic University, Hong Kong, China

Sustainability, 2018, vol. 10, issue 11, 1-22

Abstract: The Environmental Protection Law, which includes 70 articles and major changes in six aspects compared to the old law, is called in Chinese society the new Environment Protection Law. When the law was implemented in 2014, it was an important event in China that could be seen as a natural experiment. Based on a difference-in-differences model, this paper considers all of the listed heavily polluting enterprises between 2011 and 2016 as the experimental group and all of the other firms in the same industries listed on the Chinese stock market as the control group and examines the impact of the new Environmental Protection Law on the corporate financing of heavily polluting enterprises and its mechanisms. The results show that the strict environmental law caused Chinese listed enterprises to face higher environmental regulation costs, public pressure and environmental litigation. The financing capacity of heavily polluting enterprises has dropped significantly, especially in areas with higher regulatory intensity. Furthermore, since the new Environmental Protection Law was established, overinvestment by China’s heavily polluting enterprises has been significantly inhibited, and the decline in financing capacity exerts a mediating effect. The ultimate economic consequences of the new Environmental Protection Law are to decrease the corporate value of heavily polluting industries.

Keywords: environmental regulation; regulatory intensity; corporate financing; corporate value; heavily polluting enterprises (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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