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

Posted: 20 Jan 2021

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Bo Cheng

Nanjing Audit University

Zi-Tian Wang

The University of Queensland

Qianqian Yu

Lehigh University

Date Written: November 29, 2020

Abstract

Exploiting changes in China’s Environmental Protection Law in 2015 as a plausibly exogenous shock to the stringency of pollution control, we evaluate the role that state ownership plays in improving environmental quality. Using a difference-in-differences methodology, we find a significant increase in pollution abatement investments made by state-owned-enterprises (SOEs) from the pre-revision period to the post-revision period, relative to those made by non-SOEs during the same timeframe. In analyzing four potential mechanisms, we find that the positive impact of state ownership on green investment is not driven by: (i) the environment-related government subsidies granted to SOEs; (ii) the effects of political promotion incentives of SOEs’ top management; and (iii) administrative intervention by their sponsoring government. Rather, our analysis suggests that SOEs undertake greater green investments due to their greater concern for local social welfare, as evidenced by the fact that SOEs that make larger amounts of charitable donations and those sponsored by local governments (as opposed to the central government) make greater green investments. Consistent with this, we also show that regions where SOEs have a greater economic influence improved their air quality to a greater extent after 2015 than regions where non-SEOs are more influential. Collectively, our results shed significant light on the importance of state ownership to firms’ responses to environmental regulation.

Keywords: private versus public ownership; green investment; environmental regulation; market valuation; air quality

JEL Classification: D25, G18, H75, R11

Suggested Citation

Chemmanur, Thomas J. and Cheng, Bo and Wang, Zi-Tian and Yu, Qianqian, Environmental Regulation, State Ownership, and Corporate Green Investment: Evidence from China’s 2015 Environmental Protection Law Revisions (November 29, 2020). Available at SSRN: https://ssrn.com/abstract=3739199

Thomas J. Chemmanur

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Bo Cheng

Nanjing Audit University ( email )

Nanjing, Jiangsu 211815
China

Zi-Tian Wang

The University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Qianqian Yu (Contact Author)

Lehigh University ( email )

621 Taylor Street
Bethlehem, PA 18015
United States

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