Journal of Business Ethics

, Volume 138, Issue 4, pp 649–659 | Cite as

Political Connections and Industrial Pollution: Evidence Based on State Ownership and Environmental Levies in China

  • Min Maung
  • Craig Wilson
  • Xiaobo TangEmail author


We investigate how state involvement in the ownership of non-listed entrepreneurial firms affects pollution fees levied by national and provincial governments in China (environmental levies). While the national government sets minimum environmental standards, provincial governments can enact requirements that exceed these minimums, and they are largely responsible for enforcing even the national standards, so environmental levies can measure concessions that provinces make to encourage development and employment. Furthermore, state ownership is a good proxy for a firm’s political connections, which can influence the relationship between the firm and the environmental authorities. We find that firms with state ownership pay lower environmental levies, which indicates that concessions are made for political or economic purposes. However, these concessions are conditional on the level of development of the province offering them, with better developed provinces providing fewer concessions.


Political connections Industrial pollution State ownership Environmental levies 



State-owned enterprise


Gross domestic product


Chief executive officer


Chinese non-listed enterprise database



This study was partially supported by Natural Science Foundation of China #71272143 for Tang, and it was done when Tang was a visiting scholar at the University of Manitoba, Canada.


  1. Bunkanwanicha, P., & Wiwattanakantang, Y. (2009). Big business owners in politics. Review of Financial Studies, 22(6), 2133–2168.CrossRefGoogle Scholar
  2. Chaney, P., Faccio, M., & Parsley, D. (2011). The quality of accounting information in politically connected firms. Journal of Accounting and Economics, 51(1), 58–76.CrossRefGoogle Scholar
  3. Chang, S., & Xu, D. (2008). Spillovers and competition among foreign and local firms in China. Strategic Management Journal, 29(5), 495–518.CrossRefGoogle Scholar
  4. Charumilind, C., Kali, R., & Wiwattanakantang, Y. (2006). Connected lending: Thailand before the financial crisis. Journal of Business, 79(1), 181–217.CrossRefGoogle Scholar
  5. Chen, D., Ding, S., & Wu, Z. (2014a). Effect of foreign ownership on cost of borrowing: Evidence from small and medium-sized enterprises in China. International Small Business Journal, 32(6), 693–715.CrossRefGoogle Scholar
  6. Chen, Q., Maung, M., Shi, Y., & Wilson, C. (2014b). Foreign direct investment concessions and environmental levies in China. International Review of Financial Analysis, 36, 241–250.CrossRefGoogle Scholar
  7. Cheung, Y.L., Jing, L., Rau, P.R., Stouraitis, A., (2005). Guanxi, political connections, and expropriation: The dark side of state ownership in Chinese listed companies. City University of Hong Kong and Purdue University Working Paper.Google Scholar
  8. Chun, R. (2009). Ethical values and environmentalism in China: Comparing employees from state-owned and private firms. Journal of Business Ethics, 84(3), 341–348.CrossRefGoogle Scholar
  9. Cull, R., & Xu, L. (2005). Institutions, ownership and finance: The determinants of profit reinvestment among Chinese firms. Journal of Financial Economics, 77(1), 117–146.CrossRefGoogle Scholar
  10. Dasgupta, S., Wang, H., and Wheeler, D. (1997). Surviving success: Policy reform and the future of industrial pollution in China. World Bank Policy Research Working Paper Series 1856.Google Scholar
  11. Dean, J., Lovely, M., & Wang, H. (2009). Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China. Journal of Development Economics, 90(1), 1–13.CrossRefGoogle Scholar
  12. Diao, X. D., Zeng, S. X., Tam, C. M., & Tam, V. W. Y. (2009). EKC analysis for studying economic growth and environmental quality: A case study in China. Journal of Cleaner Production, 17(5), 541–548.CrossRefGoogle Scholar
  13. Ding, S., Jia, C., Wu, Z., & Yuan, W. (2014). Environmental management under subnational institutional constraints. Journal of Business Ethics. doi: 10.1007/s10551-014-2388-0.
  14. Ding, S., Jia, C., Wilson, C., and Wu, Z. (2015). Political connections and agency conflicts: The roles of owner and manager political influence on executive compensation. Review of Quantitative Finance and Accounting, 45(2), 407–434.Google Scholar
  15. Faccio, M. (2006). Politically connected firms. American Economic Review, 96(1), 369–386.CrossRefGoogle Scholar
  16. Faccio, M., Masulis, R., & McConnell, J. (2006). Political connections and corporate bailouts. Journal of Finance, 61(6), 2597–2635.CrossRefGoogle Scholar
  17. Fan, G., Wang, X., & Zhu, H. (2007a). NERI Index of marketisation for China’s Provinces: 2006 report. Beijing (in Chinese): Economic Science Press.Google Scholar
  18. Fan, J. P. H., Wong, T. J., & Zhang, T. (2007b). Politically connected CEOs, corporate governance and post-IPO performance of China’s newly partially privatized firms. Journal of Financial Economics, 84(2), 265–290.CrossRefGoogle Scholar
  19. Fisman, R. (2001). Estimating the value of political connections. American Economic Review, 91(4), 1095–1102.CrossRefGoogle Scholar
  20. Geng, X., Yang, X., & Janus, A. (2009). State-owned enterprises in China: Reform dynamics and impacts. In R. Garnaut, L. Song, & W. T. Woo (Eds.), China’s new place in a world in crisis (pp. 155–178). Canberra: ANU E Press.Google Scholar
  21. Jiang, L., Lin, C., & Lin, P. P. (2014). The determinants of pollution levels: Firm-level evidence from Chinese manufacturing. Journal of Comparative Economics, 42(1), 118–142.CrossRefGoogle Scholar
  22. Johnson, S., & Mitton, T. (2003). Cronyism and capital controls: Evidence from Malaysia. Journal of Financial Economics, 67(2), 351–382.CrossRefGoogle Scholar
  23. Megginson, W. L., & Netter, J. M. (2001). From state to market: A survey of empirical studies on privatization. Journal of Economic Literature, 39(2), 321–389.CrossRefGoogle Scholar
  24. Park, S., Li, S., & Tse, D. (2006). Market liberalization and firm performance during China’s economic transition. Journal of International Business Studies, 37(1), 127–147.CrossRefGoogle Scholar
  25. Piotroski, J.D., Wong, T.J., and Zhang, T. (2015). Political incentives to suppress negative information: Evidence from Chinese listed firms. Journal of Accounting Research, 53(2), 405–459.Google Scholar
  26. Qin, B. (2013). Political connection and government patronage: Evidence from Chinese manufacturing firms. Stockholm University Working Paper.Google Scholar
  27. Tanaka, S. (2015). Environmental regulations on air pollution in China and their impact on infant mortality. Journal of Health Economics, 42, 90–103.CrossRefGoogle Scholar
  28. Walker, K., Ni, N., & Huo, W. (2014). Is the red dragon green? An examination of the antecedents and competitive advantage to environmental proactivity in China. Journal of Business Ethics, 125(1), 27–43.CrossRefGoogle Scholar
  29. Wang, H., Bi, J., Wheeler, D., Wang, J., Cao, D., Lu, G., & Wang, Y. (2004). Environmental performance rating and disclosure: China’s green-watch program. Journal of Environmental Management, 71(2), 123–133.CrossRefGoogle Scholar
  30. Wang, H., & Jin, Y. H. (2007). Industrial ownership and environmental performance: Evidence from China. Environmental & Resource Economics, 36(3), 255–273.CrossRefGoogle Scholar
  31. Wang, H., Mamingi, N., Laplante, B., & Dasgupta, S. (2003). Incomplete enforcement of pollution regulation: Bargaining power of Chinese factories. Environmental & Resource Economics, 24(3), 245–262.CrossRefGoogle Scholar
  32. Wang, H., & Wheeler, D. (1996). Pricing industrial pollution in China: An econometric analysis of the levy system, World Bank Policy Research Working Paper 1644.Google Scholar
  33. Wang, H., & Wheeler, D. (2003). Equilibrium pollution and economic development in China. Environment and Development Economics, 8(3), 451–466.CrossRefGoogle Scholar
  34. Wang, H., & Wheeler, D. (2005). Financial incentives and endogenous enforcement in China’s pollution levy system. Journal of Environmental Economics and Management, 49(1), 174–196.CrossRefGoogle Scholar
  35. Xu, X. D., Zeng, S. X., & Tam, C. M. (2012). Stock market’s reaction to disclosure of environmental violations: evidence from China. Journal of Business Ethics, 107(2), 227–237.CrossRefGoogle Scholar
  36. Yang, F., Wilson, C., & Wu, Z. (2014). Investor perceptions of the benefits of political connections: Evidence from China’s A-share premiums. International Journal of Managerial Finance, 10(3), 312–331.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  1. 1.Edward School of BusinessUniversity of SaskatchewanSaskatoonCanada
  2. 2.School of Business AdministrationZhejiang Gongshang UniversityHangzhouChina
  3. 3.International Business DepartmentZhejiang Financial CollegeHangzhouChina
  4. 4.Asper School of BusinessUniversity of ManitobaWinnipegCanada

Personalised recommendations