Relocate or Innovate? The Impact of Environmental Regulation Stringency on Pollution-Intensive Firms in China

24 Pages Posted: 20 Sep 2022

See all articles by Yizhe Dong

Yizhe Dong

University of Edinburgh Business School

Wenxuan Hou

University of Edinburgh - Business School

Xi Liang

University College London

Tianju Wang

University of Edinburgh Business School

Multiple version iconThere are 2 versions of this paper

Abstract

This paper examines the impact of environmental regulation stringency on the location choice of Chinese pollution-intensive firms. We find that the stringency reduces the number and growth rate of pollution-intensive firms in highly regulated regions. An important channel through which stringent environmental regulations hold back firm creation is increased financing costs. We also find that raising environmental regulation stringency has a spillover effect on pollution-intensive firms’ location choice in neighbouring provinces. Overall, the results support the pollution haven hypothesis and uncover a financing-based mechanism underlying the relationship between environmental regulation and firms’ location choice.

Keywords: environmental regulation, pollution-intensive firms, green finance, spillovers.

Suggested Citation

Dong, Yizhe and Hou, Wenxuan and Liang, Xi and Wang, Tianju, Relocate or Innovate? The Impact of Environmental Regulation Stringency on Pollution-Intensive Firms in China. Available at SSRN: https://ssrn.com/abstract=4225061 or http://dx.doi.org/10.2139/ssrn.4225061

Yizhe Dong

University of Edinburgh Business School ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

Wenxuan Hou (Contact Author)

University of Edinburgh - Business School ( email )

29 Buccleuch Place
EDINBURGH, Scotland EH89JS
United Kingdom

Xi Liang

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Tianju Wang

University of Edinburgh Business School ( email )

Edinburgh
United Kingdom
07410115152 (Phone)

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