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Does environmental regulation promote corporate green investment? Evidence from China’s new environmental protection law

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Abstract

Green investment is crucial to achieving the green transformation goal. Under increasingly strict environmental protection laws and regulations, whether it can induce the “Porter Hypothesis” effect and stimulate the green investment of enterprises is still controversial. This paper takes the China’s new environmental protection law (NEPL) as a quasi-natural experiment, uses the green investment data of listed companies in China’s heavy pollution industry, and applies the method of propensity score matching and difference-in-difference (PSM-DID) to verify whether the implementation of the law conforms to the “strong Porter Hypothesis.” The results show that as a strict command-and-control environmental regulation tool, the implementation of NEPL has significantly promoted corporate’s green investments in heavily polluting industries. The implementation of the NEPL guides to more standardized environmental disclosure regulation, stricter environmental enforcement, and severer financial constraints, and thus propel corporate’s green investment. In addition, heterogeneity analysis indicates that the effect of NEPL is more significant in those samples of enterprises located in the regions with higher industrial concentration degree or with higher level of government environmental governance, enterprises of small and medium type, and enterprises with better financial performance and higher degree of equity incentive. To achieve the carbon peaking and carbon neutrality goals, this paper provides evidence to test whether “Porter Hypothesis” is established in transition economies from the view of environmental investment and provides reference for how developing country can further enrich their environmental regulation system and optimize enterprise’s environmental protection strategies.

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Notes

  1. https://energyandcleanair.org/publications/costs-of-air-pollution-from-fossil-fuels/.

  2. https://www.climatebonds.net/files/reports/cbi_gfo_china_ch_final.pdf.

  3. http://www.scio.gov.cn/zfbps/ndhf/2006/Document/307875/307875.htm.

  4. The 23 industries are as follows: Coal mining and dressing industry (B06); Oil and natural gas exploitation industry (B07); Ferrous metal ore mining and dressing industry(B08); Non-ferrous metal ore mining and dressing industry (B09); Non-metallic ore mining and dressing industry (B10); Exploitation auxiliary activities (B11); Alcohol, beverage and refined tea manufacturing (C15); Textile industry (C17); Textile garment and apparel industry (C18); Leathers, furs, feathers and related products and footwear industry (C19); Papermaking and paper product industry (C22); Industries of petroleum processing, coking, and nuclear fuel processing (C25); Manufacturing of chemical raw materials and chemical products (C26); Chemical fiber manufacturing (C28); Industry of rubber and plastic products (C29); Industry of non-metallic mineral products (C30); Industry of ferrous metal smelting and rolling processing (C31); Industry of non-ferrous metal smelting and rolling processing (C32); Metal product industry (C33); Industry of electric power and heat production and supply (D44); Gas production and supply industry (D45); Construction installation industry (E49); Architectural decoration and other construction industries (E50).

  5. Hebei, Heilongjiang, Jiangsu, Jiangxi, Henan, Guangxi, Yunnan, Ningxia, Beijing, Shanghai, Hubei, Guangdong, Chongqing, Shaanxi and Gansu.

  6. Beijing, Hebei, Shanxi, Shandong, Jiangsu, Henan, Hunan, Guangxi, Hainan, Sichuan, Chongqing and Guizhou.

  7. According to the classification criteria of Hithink RoyalFlush, there are 14 heavily polluting industries: Coal mining and dressing industry (B06);Oil and natural gas exploitation industry (B07); Ferrous metal ore mining and dressing industry (B08); Agricultural and sideline food processing industry (C13); Alcohol, beverage and refined tea manufacturing (C15); Textile garment and apparel industry (C18); Leathers, furs, feathers and related products and footwear industry (C19); Papermaking and paper product industry (C22); Manufacturing of chemical raw materials and chemical products (C26); Pharmaceutical industry (C27); Industry of rubber and plastic products (C29); Industry of non-metallic mineral products (C30); Industry of non-ferrous metal smelting and rolling processing (C32); Industry of electric power and heat production and supply (D44).

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Funding

This paper is supported by the following projects: Guangdong Provincial Philosophy and Social Sciences Planning Project “Digital Empowerment and Manufacturing Global Value Chain Climbing: Theoretical Logic and Guangdong Practice” (GD22YYJ16); Project of the 14th Five-Year Plan for the Development of Philosophy and Social Sciences in Guangzhou, “Research on Building a Strong City of Modern Service Industry in Guangzhou: Based on the Perspective of collaborative governance of Digital Transformation” (2022GZQN06); Guangdong Philosophy and Social Sciences Planning Project “Digital Transformation and Green Development of Guangdong Enterprises: Theoretical Logic and Empirical Evidence” (GD23GJ113); Guangdong Province Innovation Training Project “Spatial Layout of Digital Service Industry and Upgrading of China's Manufacturing Value Chain: Coordination or Disharmony”.

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Authors and Affiliations

  1. Institute of Studies for the Greater Bay Area, Guangdong University of Foreign Studies, Guangzhou City, 510006, Guangdong Province, People’s Republic of China

    Sheng Liu

  2. School of Economics, Nankai University, Tianjin City, 300071, People’s Republic of China

    Heming Liu

  3. School of Economics and Trade, Guangdong University of Finance, Guangzhou City, 510521, Guangdong Province, People’s Republic of China

    Xiuying Chen

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Liu, S., Liu, H. & Chen, X. Does environmental regulation promote corporate green investment? Evidence from China’s new environmental protection law. Environ Dev Sustain 26, 12589–12618 (2024). https://doi.org/10.1007/s10668-023-03933-3

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