Abstract
There is no doubt that environmental regulation policy will increase the production cost of manufacturing enterprises, then can this policy help improve the business performance in the long run? This study aims to explore whether the environmental regulation policy could increase the business performance of manufacturing enterprises (BPME). With the panel data of 467,649 manufacturing enterprises from China Industry Enterprise Database (2010–2013), we employ the comparative statistical analysis to examine the influence of China’s environmental regulation policy, in the form of Ten-Thousand Enterprises Energy Conservation and Low Carbon Program (TEP), on the BPME. The empirical results show that first, TEP and BPME are positively correlated, and enterprises with excellent initial performance are more likely to be concerned by TEP. Second, the impact of TEP on BPME is first restrained and then promoted, indicating that there is an inverted U-shaped relationship between the policy and the performance. Third, this promotion effect is mainly reflected through the innovation compensation mechanism and is easier to be seen in non-state-owned, western, and technological-intensive enterprises. This study further confirms the Porter hypothesis and provides the Chinese government with reference for adjusting environmental regulation policies as well as achieving sustainable development.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Aghion, P., Dechezleprêtre, A., Hemous, D., et al. (2016). Carbon taxes, path dependency and directed technical change: evidence from the auto industry. Journal of Political Economy, 124, 1–51. https://doi.org/10.2139/ssrn.2202047
Aghion, P., & Howitt, P. (1992). A Model of Growth Through Creative Destruction. Econometrica, 60, 323–351. https://doi.org/10.2307/2951599
Alpay, E., Kerkvliet, J., Buccola, S. T., et al. (2002). Productivity growth and environmental regulation in mexican and U.S. food manufacturing. American Journal of Agricultural Economics, 84, 887–901. https://doi.org/10.1111/1467-8276.00041
Andersson, U., Forsgren, M., & Holm U. (2015). The Strategic Impact of External Networks: Subsidiary Performance and Competence Development in the Multinational Corporation. In: Forsgren, M., Holm, U., & Johanson, J. (eds). Knowledge, Networks and Power. Palgrave Macmillan, London. https://doi.org/10.1057/9781137508829_13.
Anna, J. B. (2020). Endogenous innovation potential: regional SEMs’ perspective in emerging economies. International Journal of Economics & Business Administration, 4, 435–449.
Baumol, W. J., & Oates, W. E. (1975). The Theory of Environmental Policy (2nd Edition). Cambridge University Press. https://doi.org/10.1017/CBO9781139173513.
Bernard, A. B., & Jensen, J. B. (1999). Exceptional exporter performance: cause, effect, or both? Journal of International Economics, 47, 1–25. https://doi.org/10.1016/S0022-1996(98)00027-0
Boons, F., Montalvo, C., Quist, J., et al. (2013). Sustainable innovation, business models and economic performance: an overview. Journal of Cleaner Production, 45, 1–8. https://doi.org/10.1016/j.jclepro.2012.08.013
Brunel, C., Levinson, A. (2013). Measuring environmental regulatory stringency. OECD Trade and Environment Working Papers, Paris: OECD Publishing. https://doi.org/10.1787/5k41t69f6f6d-en.
Brunnermeier, S., & Cohen, M. A. (2003). Determinants of environmental innovation in US manufacturing industries. Journal of Environmental Economics and Management, 45, 278–293. https://doi.org/10.1016/S0095-0696(02)00058-X
Calel, R., & Dechezleprêtre, A. (2016). Environmental policy and directed technological change: evidence from the European carbon market. The Review of Economics and Statistics, 98, 173–191. https://doi.org/10.1162/REST_a_00470
Chen, Y., Singhal, V., & Zhu, Q. H. (2020). Environmental policies and financial performance: stock market reaction to firms for their proactive environmental practices recognized by governmental programs. Business Strategy and the Environment. https://doi.org/10.1002/bse.2693
Chien, C. V. (2019). Rigorous policy pilots: Experimentation in the Administration of the Law. IOWA Law Review, 104, 2313–2350.
Crotty, J. R. (1992). Neoclassical and Keynesian approaches to the theory of investment. Journal of Post Keynesian Economics, 14, 483–496.
Dechezleprêtre, A., & Sato, M. (2017). The impacts of environmental regulations on competitiveness. Review of Environmental Economics and Policy, 11, 183–206. https://doi.org/10.1093/reep/rey027
Deng, J. Q., Zhang, N., Ahmad, F., et al. (2019). Local government competition, environmental regulation intensity and regional innovation performance: an empirical investigation of Chinese provinces. International Journal of Environmental Research and Public Health, 16, 1–16. https://doi.org/10.3390/ijerph16122130
Deng, X., & Li, L. (2020). Promoting or inhibiting? the impact of environmental regulation on corporate financial performance-an empirical analysis based on China. International Journal of Environmental Research and Public Health, 17(11), 3828. https://doi.org/10.3390/ijerph17113828
Deng, Z., Li, D. Y., & Pang, T. (2018). Effectiveness of pilot carbon emissions trading systems in China. Climate Policy, 18, 992–1011. https://doi.org/10.1080/14693062.2018.1438245
Dong, F., & Liu, Y. J. (2020). Policy evolution and effect evaluation of new-energy vehicle industry in China. Resources Policy, 67, 101655. https://doi.org/10.1016/j.resourpol.2020.101655
Falcone, P. M. (2020). Environmental regulation and green investments: the role of green finance. International Journal of Green Economics, 14, 159–173. https://doi.org/10.1504/IJGE.2020.10032078
Falcone, P. M., Alisa, G., Germani, A. R., & Morone, P. (2020). When all seemed lost a social network analysis of the waste related environmental movement in Campania. Italy. Political Geography., 77, 102114. https://doi.org/10.1016/j.polgeo.2019.102114
Fan, Q. Q., & Zhang, T. B. (2018). Environmental regulation policy and pollution control mechanism in China’s economic growth path. The Journal of World Economy, 41, 171–192. in Chinese.
George, H. E., George, P. J., Emmanuel, H. G., et al. (2019). Environmental regulation and economic cycles. Economic Analysis and Policy, 64, 172–177. https://doi.org/10.1016/j.eap.2019.07.005
Gollop, F. M., & Roberts, M. J. (1983). Environmental regulations and productivity growth: the case of fossil-fueled electric power generation. Journal of Political Economy, 9, 654–674. https://doi.org/10.2307/1831072
Gray, W. B., & Shadbegian, R. J. (2003). Plant vintage, technology, and environmental regulations. Journal of Environmental Economics and Management, 46, 384–402. https://doi.org/10.1016/S0095-0696(03)00031-7
Greenstone, M., List, J. A., & Syverson, C. (2012). The effects of environmental regulation on the competitiveness of U.S. manufacturing. Working Papers, Massachusetts Institute of Technology, Dept. of Economics, Cambridge, MA: Department of Economics, Massachusetts Institute of Technology, 12–24. https://doi.org/10.2139/ssrn.1759405.
Grossman, G. M., & Krueger, A. B. (1995). Economic growth and the environment. Quarterly Journal of Economics, 110, 353–377. https://doi.org/10.2307/2118443
Guo, Z., Zhou, X. M., & Wang, P. (2013). Analysis of the impact of environmental policy on China’s economic sustainability: based on CGE model. Shanghai Journal of Economics, 25, 70–80. (in Chinese).
Hamamoto, M. (2006). Environmental regulation and the productivity of Japanese manufacturing industries. Resource and Energy Economics, 28, 299–312. https://doi.org/10.1016/j.reseneeco.2005.11.001
Hami, N., Muhamad, M. R., Ebrahim, Z., et al. (2015). The impact of sustainable manufacturing practices and innovation performance on economic sustainability. Procedia CIRP. https://doi.org/10.1016/j.procir.2014.07.167
Harmsen, J. H. M., van Vuuren, D. P., Nayak, D. R., et al. (2019). Long-term marginal abatement cost curves of non-CO2 greenhouse gases. Environmental Science & Policy, 99, 136–149. https://doi.org/10.1016/j.envsci.2019.05.013
He, W. J., Tan, L. M., Liu, Z. J., et al. (2020). Property rights protection, environmental regulation and corporate financial performance: revisiting the porter hypothesis. Journal of Cleaner Production, 264, 121615. https://doi.org/10.1016/j.jclepro.2020.121615
Henderson, D. J., & Millimet, D. L. (2005). Environmental regulation and US state-level production. Economics Letters, 87, 47–53. https://doi.org/10.1016/j.econlet.2004.08.013
Hizarci-Payne, A. K., Ipek, I., & Kurt, G. G. (2020). How environmental innovation influences firm performance: a meta-analytic review. Business Strategy and the Environment. https://doi.org/10.1002/bse.2678
Hou, J., Liu, Y. S., & Wu, Y. (2016). Comparative study of commercial building energy-efficiency retrofit policies in four pilot cities in China. Energy Policy, 88, 204–215. https://doi.org/10.1016/j.enpol.2015.10.016
Hu, D., Wang, Y. D., & Huang, J. S. (2017). How do different innovation forms mediate the relationship between environmental regulation and performance? Journal of Cleaner Production, 161, 466–476. https://doi.org/10.1016/j.jclepro.2017.05.152
Hughes, S., Yordi, S., & Besco, L. (2020). The role of pilot projects in urban climate change policy innovation. Policy Studies Journal, 48, 271–297. https://doi.org/10.1111/psj.12288
Jaffe, A. B., Newell, R. G., Stavins, R. N., et al. (2003). “Technological change and the environment”, In Mäler, K. G., & Vincent, J. R. Handbook in Environmental Economics, Chapter 11, 461–516, Elsevier Science. https://doi.org/10.2139/ssrn.252927.
Jaffe, A. B., & Palmer, K. L. (1997). Environmental regulation and innovation: a panel data study. The Review of Economics and Statistics, 79, 610–619. https://doi.org/10.1162/003465397557196
Joo, H. Y., & Suh, H. (2017). The effects of government support on corporate performance hedging against international environmental regulation. Sustainability, 9, 1–25. https://doi.org/10.3390/su9111980
Jorgenson, D. W., & Wilcoxen, P. J. (1990). Environmental regulation and U.S economic growth. Rand Journal of Economics, 21, 314–340. https://doi.org/10.2307/2555426
Ko, K., & Shin, K. (2017). How Asian countries understand policy experiment as policy pilots? Asian Journal of Political Science, 25, 253–265. https://doi.org/10.1080/02185377.2017.1360784
Lanjouw, J. O., & Mody, A. (1996). Innovation and the international diffusion of environmentally responsive technology. Research Policy, 25, 549–571. https://doi.org/10.1016/0048-7333(95)00853-5
Lanoie, P., Laurentlucchetti, J., Johnstone, N., et al. (2011). Environmental policy, innovation and performance: new insights on the porter hypothesis. Journal of Economics and Management Strategy, 20, 803–842. https://doi.org/10.1111/j.1530-9134.2011.00301.x
Lanoie, P., Patry, M., & Lajeunesse, R. (2008). Environmental regulation and productivity: new findings on the Porter hypothesis. Journal of Productivity Analysis, 30, 121–128. https://doi.org/10.1007/s11123-008-0108-4
Lee, J., Veloso, F. M., & Hounshell, D. A. (2011). Linking induced technological change, and environmental regulation: evidence from patenting in the US auto industry. Research Policy, 40, 1240–1252. https://doi.org/10.1016/j.respol.2011.06.006
Li, H., He, F., Shao, Y. M., et al. (2018). The effects of environmental regulation and financial constraints on corporate R&D investment in China. Journal of Scientific & Industrial Research, 77, 442–446.
Li, J., Zhao, M., & Yang, Y. E. (2019a). Environmental regulation and firms’ performance: a quasi-natural experiment from China. Chinese Journal of Population, Resources and Environment, 17, 278–294. https://doi.org/10.1080/10042857.2019.1651193
Li, Y., Chi, Y. H., & Lin, T. Y. (2019b). Coal production efficiency and land destruction in China’s coal mining industry. Resources Policy, 63, 1–11. https://doi.org/10.1016/j.resourpol.2019.101449
Li, Y., Ding, L. L., & Yang, Y. L. (2020). Can the introduction of an environmental target assessment policy improve the TFP of textile enterprises? a quasi-natural experiment based on the huai river basin in China. Sustainability, 12, 1–19. https://doi.org/10.3390/su12041696
Lian, T. H., Ma, T. Y., Cao, J., et al. (2016). The effects of environmental regulation on the industrial location of China’s manufacturing. Natural Hazards, 80(2), 1381–1403. https://doi.org/10.1007/s11069-015-2008-z
Lim, C. Y., Wang, J. W., & Zeng, C. (2018). China’s “mercantilist” government subsidies, the cost of debt and firm performance. Journal of Banking & Finance, 86, 37–52. https://doi.org/10.1016/j.jbankfin.2017.09.004
List, J. A., McHone, W. W., & Millimet, D. L. (2004). Effects of environmental regulation on foreign and domestic plant births: is there a home field advantage? Journal of Urban Economics, 56, 303–326. https://doi.org/10.1016/j.jue.2004.03.007
Liu, M., Liu, Y., & Zhao, Y. L. (2021). Environmental compliance and enterprise innovation: empirical evidence from Chinese manufacturing enterprises. International Journal of Environmental Research and Public Health, 18(4), 1924. https://doi.org/10.3390/ijerph18041924
Liu, Y., Tong, K. D., Mao, F., et al. (2020b). Research on digital production technology for traditional manufacturing enterprises based on industrial. International Journal of Advanced Manufacturing Technology, 107, 1101–1114. https://doi.org/10.1007/s00170-019-04284-y
Liu, Y. Q., Zhu, J. L., Li, E. Y., et al. (2020a). Environmental regulation, green technological innovation, and eco-efficiency: the case of Yangtze River economic belt in China. Technological Forecasting and Social Change, 155, 1–21. https://doi.org/10.1016/j.techfore.2020.119993
Majumdar, S. K., & Marcus, A. A. (2001). Rules versus discretion: the productivity consequences of flexible regulation. Academy of Management Journal, 44, 170–179.
Martin, R., Wagner, U. J., & Preux, L. B. D. (2009). The impacts of climate change levy on business: Evidence from microdata. LSE Research Online Documents on Economics.
Millimet, D. L., & List, J. A. (2004). The Case of the Missing pollution haven hypothesis. Journal of Regulatory Economics, 26, 239–262. https://doi.org/10.1007/s11149-004-7550-7
Mohr, R. D. (2002). Technical change, external economies, and the porter hypothesis. Journal of Environmental Economics and Management, 43, 158–168. https://doi.org/10.1006/jeem.2000.1166
Neves, S. A., Marques, A. C., & Patricio, M. (2020). Determinants of CO2 emissions in European union countries: does environmental regulation reduce environmental pollution? Economic Analysis and Policy, 68, 114–125. https://doi.org/10.1016/j.eap.2020.09.005
Olley, S., & Pakes, A. (1996). The dynamics of productivity in the telecommunications equipment industry. Econometrica, 64, 1263–1298. https://doi.org/10.2307/2171831
Peng, B. H., Tu, Y., & Elahi, E. (2018). Extended Producer responsibility and corporate performance: effects of environmental regulation and environmental strategy. Journal of Environmental Management, 218, 181–189. https://doi.org/10.1016/j.jenvman.2018.04.068
Porter, M. E. (1991). America’s green strategy. Scientific American, 264, 168. https://doi.org/10.1038/scientificamerican0491-168
Porter, M. E., & Linde, C. V. D. (1995a). Green and Competitive: Ending the Stalemate. Long Range Planning, 6, 128–129. https://doi.org/10.1016/0024-6301(95)99997-E
Porter, M. E., & Linde, C. V. D. (1995b). Toward a new conception of the environment-competitiveness relationship. Journal of Economic Perspectives, 9, 97–118. https://doi.org/10.1257/jep.9.4.97
Provasnek, A. K., Schmid, E., Geissler, B., et al. (2017). Sustainable Corporate entrepreneurship: performance and strategies toward innovation. Business Strategy and the Environment, 26, 521–535. https://doi.org/10.1002/bse.1934
Qian, S. S., Gao, M., & Huang, Q. H. (2019). Has environmental regulation achieved a win-win situation of energy conservation and emission reduction and economic growth? Ecological Economy, 35, 154–160. (in Chinese).
Rammer, C., Gottschalk, S., Peneder, M., et al. (2017). Does energy policy hurt international competitiveness of firms? a comparative study for Germany, Switzerland and Austria. Energy Policy, 109, 154–180. https://doi.org/10.1016/j.enpol.2017.06.062
Rubashkina, Y., Galeotti, M., & Verdolini, E. (2015). Environmental regulation and competitiveness: empirical evidence on the porter hypothesis from European manufacturing sectors. Energy Policy, 83, 288–300. https://doi.org/10.1016/j.enpol.2015.02.014
Sato, M., Singer, G., Dussaux, D., & Lovo, S. (2015). International and sectoral variation in energy prices 1995–2011: How does it relate to emissions policy stringency? GRI Working Papers 187, Grantham Research Institute on Climate Change and the Environment.
Saygili, M. (2016). Pollution abatement costs and productivity: does the type of cost matter? Letters in Spatial and Resource Sciences, 9, 1–7. https://doi.org/10.1007/s12076-014-0127-x
Sen, P., Roy, M., & Pal, P. (2015). Exploring role of environmental proactivity in financial performance of manufacturing enterprises: a structural modelling approach. Journal of Cleaner Production, 108, 583–594. https://doi.org/10.1016/j.jclepro.2015.05.076
Shadbegian, R. J., & Gray, W. B. (2005). Pollution abatement expenditures and plant-level productivity: a production function approach. Ecological Economics, 54, 196–208. https://doi.org/10.1016/j.ecolecon.2004.12.029
Testa, F., Iraldo, F., Frey, M., et al. (2011). The effect of environmental regulation on firms’ competitive performance: the case of the building & construction sector in some EU regions. Journal of Environmental Management, 92, 2136–2144. https://doi.org/10.1016/j.jenvman.2011.03.039
Ungerman, O., & Dedkova, J. (2020). Model of the circular economy and its application in business practice. Environment Development and Sustainability, 22, 3407–3432. https://doi.org/10.1007/s10668-019-00351-2
Walley, N., & Whitehead, B. (1994). It’s not easy being green. Harvard Business Review, 72, 46–51. https://doi.org/10.1145/2342356.2342398
Walter, I. (1982). “Environmentally induced industrial relocation to developing countries,” In S.J. Rubin and T.R. Graham (eds.), Environment and Trade, New Jersey: Allanhead, Osmun and Co.
Wang, C., & Zhang, Y. (2020). Does environmental regulation policy help improve green production performance? evidence from China’s industry. Corporate Social Responsibility and Environmental Management, 27, 937–951. https://doi.org/10.1002/csr.1857
Wang, Y., & Zhi, Q. (2016). The role of green finance in environmental protection: two aspects of market mechanism and policies. Energy Procedia, 104, 311–316. https://doi.org/10.1016/j.egypro.2016.12.053
Wu, G. C. (2017). Environmental innovation approaches and business performance: effects of environmental regulations and resource commitment. Innovation-Organization & Management, 19, 407–427. https://doi.org/10.1080/14479338.2017.1358102
Wu, L. P., Chen, Y., & Feylizadeh, M. R. (2019). Study on the estimation, decomposition and application of China’s provincial carbon marginal abatement costs. Journal of Cleaner Production, 207, 1007–1022. https://doi.org/10.1016/j.jclepro.2018.10.082
Wu, M. L., Wang, X. H., Chen, X. F., et al. (2020). The threshold effect of R&D investment on regional economic performance in China considering environmental regulation. Technology Analysis & Strategic Management, 32, 851–868. https://doi.org/10.1080/09537325.2020.1715362
Xu, J., Wang, X. H., & Liu, F. (2020). Government subsidies, R&D investment and innovation performance: analysis from pharmaceutical sector in China. Technology Analysis & Strategic Management. https://doi.org/10.1080/09537325.2020.1830055
Yao, Y., Jiao, J. L., Han, X. F., et al. (2019). Can constraint targets facilitate industrial green production performance in China? energy-saving target vs emission-reduction target. Journal of Cleaner Production, 209, 862–875. https://doi.org/10.1016/j.jclepro.2018.10.274
Yu, C. H., Wu, X. Q., Zhang, D. Y., et al. (2021). Demand for green finance: resolving financing constraints on green innovation in China. Energy Policy, 153, 112255. https://doi.org/10.1016/j.enpol.2021.112255
Zheng, S. L., & Li, Z. C. (2020). Pilot governance and the rise of China’s innovation. China Economic Review, 63, 1–18. https://doi.org/10.1016/j.chieco.2020.101521
Zhu, L., Wang, X., & Zhang, D. Y. (2020). Identifying strategic traders in China’s pilot carbon emissions trading scheme. Energy Journal, 41, 123–142. https://doi.org/10.5547/01956574.41.2.lzhu
Zhu, X. F. (2013). Learn from China’s local pilot schemes. Nature, 502, 38–38. https://doi.org/10.1038/502038b
Zhu, Z. S., & Liao, H. (2019). Do subsidies improve the financial performance of renewable energy companies? evidence from China. Natural Hazards, 95, 241–256. https://doi.org/10.1007/s11069-018-3423-8
Acknowledgements
We thank the anonymous reviewers for their helpful comments on this manuscript.
Funding
This research was supported financially by National Social Science Fund of China (No. 14BZZ021 and No. 16BZZ056).
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflicts of Interest
The authors declare no conflict of interest.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Zhang, Y., Wang, J., Chen, J. et al. Does environmental regulation policy help improve business performance of manufacturing enterprises? evidence from China. Environ Dev Sustain 25, 4335–4364 (2023). https://doi.org/10.1007/s10668-022-02245-2
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10668-022-02245-2