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Fine me if you can: Fixed asset intensity and enforcement of environmental regulations in China

Xun Cao, Qing Deng, Xiaojun Li and Zijie Shao

Regulation & Governance, 2022, vol. 16, issue 4, 983-1004

Abstract: Why do some firms face more environmental regulatory actions than others? We present a theory focusing on firm‐fixed asset intensity. High fixed asset intensity makes a firm less mobile. A less mobile firm cannot present a credible exit threat, making it more susceptible to stringent enforcement. Analysis of key‐monitored firms in Jiangsu province, China of 2012–2014 shows that higher fixed asset intensity is associated with more pollution levies and a higher chance of receiving a punitive action. This result holds in a battery of robustness checks and an instrumental variable analysis. Furthermore, our 2018 online survey of Chinese firm managers shows that those from high fixed asset intensity firms indeed consider their firms less mobile and they pay more environment‐related operating costs. Finally, data from 2004 Chinese Firm‐Level Industrial Survey demonstrate that fixed asset intensity is positively associated with pollution levies in a national sample of 201,926 manufacturing firms.

Date: 2022
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