Does urban low-carbon governance affect firms’ business decisions for employing capital and labor?

Huaqing Wu, Ling Wang, Tao Ding and Fei Peng

Journal of Environmental Planning and Management, 2024, vol. 67, issue 10, 2257-2280

Abstract: This study investigates the impact of urban low-carbon governance on firms’ capital-labor ratio. By treating China’s low-carbon city pilot (LCCP) policy as an urban low-carbon governance instrument, we apply a difference-in-differences method (DID) and find that the LCCP program significantly reduces firms’ capital-labor ratio, but the effect only manifests in state-owned enterprises (SOEs). The mechanism result demonstrates that to intensify urban low-carbon governance, local governments adjusted fiscal expenditure structure, resulting in SOEs employing less capital and more labor. This may be a business strategy adopted by SOEs to avoid environmental regulations, as we find that urban low-carbon governance significantly improves green technology innovation in non-SOEs, but not in SOEs.

Date: 2024
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DOI: 10.1080/09640568.2023.2184681

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