State Ownership, Environmental Regulation, and Corporate Green Investment: Evidence from China’s 2015 Environmental Protection Law Changes

Thomas J. Chemmanur (), Bo Cheng (), Zi-Tian Wang () and Qianqian Yu ()
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Thomas J. Chemmanur: Carroll School of Management, Boston College
Bo Cheng: Nanjing Audit University
Zi-Tian Wang: Southwestern University of Finance and Economics
Qianqian Yu: Lehigh University

Journal of Business Ethics, 2025, vol. 200, issue 2, No 9, 393-416

Abstract: Abstract Exploiting the regulatory change in China’s Environmental Protection Law in 2015 as a plausibly exogenous shock to the stringency of pollution control, we evaluate the joint role of state ownership and environmental regulation in shaping firms’ environment-friendly (green) investments. Using a difference-in-differences methodology, we find that state-owned enterprises (SOEs) make significantly more green investments than non-SOEs in response to the regulatory change. We propose and empirically analyze four potential mechanisms that may drive this result: (i) environment-related government subsidies granted to SOEs, (ii) political promotion incentives of SOEs’ top management, (iii) government administrative intervention, and (iv) SOEs’ concern for social welfare. We find strong support for the last mechanism whereby SOEs undertake greater green investments due to their greater concern for social welfare, as evidenced by the fact that SOEs making greater charitable donations and those controlled by local governments (and thus more bonded with local communities) make greater green investments. Consistent with this interpretation, we show that regions where SOEs have a greater economic influence improved their air quality to a greater extent after 2015 than regions where non-SOEs are more dominant. In sum, we demonstrate that state ownership and environmental regulation complement one another in motivating corporate green investment. Our results highlight the important implications for the effectiveness and interplay of different government tools in addressing environmental issues.

Keywords: Private versus state ownership; Green investment; Environmental regulation; Air quality; Market valuation (search for similar items in EconPapers)
JEL-codes: G31 G32 G38 Q32 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10551-024-05849-y

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