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The impact of product market competition on corporate environmental responsibility

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Abstract

Although the mainstream of current thinking in the business literature recognizes that firms should invest in environmental responsibility, the theory on how product market competition affects firms’ environmental responsibility remains undeveloped. Using cost-benefit analysis, we hypothesize that the relationship between product market competition (i.e., differential industry-level competition and heterogeneous firm-level market power) and corporate environmental responsibility (CER) will be curvilinear. We find support for this hypothesis through an empirical test on a panel of 792 listed manufacturing companies from 2006 to 2008 in China. The results show that (1) either too much or too little industrial competition and (2) either too much or too little firm-level market power lead to lower environmental responsibility. Our results reveal that CER is strategically chosen and related to competitive situations.

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Notes

  1. Based on the Industry Classification Guidance of Listed Companies issued by the China Securities Regulatory Commission in 2001.

  2. Websites of Shanghai Stock Exchange (http://www.sse.com.cn) and Shenzhen Stock Exchange (http://www.szse.org.cn).

  3. The NBS data contains annual survey data of all above-scale industrial firms in China (i.e., all state-owned enterprises and non-state-owned enterprises with sales above 5 million Chinese yuan). The dataset included 301,961, 336,768, and 412,000 firms in 2006, 2007, and 2008, respectively, spanning 30 two-digit manufacturing industries.

  4. See environmental rules by SEPA in 2007, instructions for strengthening supervision of environmental protection of listed companies by SEPA in 2008, guidelines of CSR for Chinese listed companies by Shenzhen Stock Exchange in 2006, and guide to environmental report for listed companies by Shanghai Stock Exchange in 2008.

  5. We also compute the total market share accounted for by the six and eight largest firms, CR6 and CR8. The variable of CR4 is highly correlated with CR6 and CR8 (the correlation coefficients are .981 and .975, respectively). If alternative measures are used for the concentration ratio, the results all have the same implications.

  6. The calculation of firms’ capital stock is extremely complex. In our article, we estimate capital stock based on the Chinese accounting standards for business enterprises, following Li, Cheng, and Wang (2007). as follows: Capital stock = equity of common stockholders + minority interests + short-term loans + current liabilities falling due within one year + long-term loans + bonds payable + long-term accounts payable + deferred taxation credit + assets devaluing reserve (e.g., bad debt reserve, inventory falling price reserves, short-term investments, falling price reserves and long-term investments depreciation reserves) + non-operating expenses after tax − non-operating income after tax. All accounting data of listed companies were collected from the CSMAR database and their annual reports.

  7. The risk-free rate for 2006–2008 was 2.35, 3.21, and 3.92 %, respectively.

  8. According to Nickell (1996). the depreciation rate is assumed to be constant at 4 %. Beiner et al. (2011) also used the assumption of 4 % following Nickell (1996). We also apply a second measure of rents based on depreciation of 4 % and found it was highly correlated with rents when using depreciation of 7.3 % (r = .987). We found that the results are qualitatively robust to using 7.3 % instead of 4 %.

  9. The Annual Report of the Marketization Index of China, a series of reports of marketization for the 31 provinces and province-equivalent municipal cities by Fan, Wang, and Zhu (2007).

  10. Based on the regulations promulgated by the Ministry of Environmental Protection of China, the selected environmentally sensitive industries include: food and drink (i.e., 13, 14, and 15); textile, clothing, and fur (i.e., 17, 18, and 19); paper making and printing (i.e., 22 and 23); petroleum, chemistry, and plastic (i.e., 25, 26, 28, 29, and 30); metal and nonmetal smelting (i.e., 31, 32, 33, and 34); and medicine and biological products (i.e., 27). The numbers in parentheses are the two-digit codes of manufacturing industries assigned by the NBS (Table 1).

  11. See more details as discussed by Petersen (2009). STATA software programming advice is accessible on Petersen’s Web page (www.kellogg.northwestern.edu/faculty/petersen/htm/papers/se/se_programming.htm).

  12. The relationship between economic performance and corporate social and environmental responsibility may be complex. See Hart and Ahuja (1996), Kim and Statman (2012), Margolis, Elfenbein, and Walsh (2007), Margolis and Walsh (2003), and Waddock and Graves (1997).

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Acknowledgments

We would like to thank the Senior Editor and one anonymous referee for very helpful suggestions that substantially improved this article. This research is supported by the National Natural Science Foundation of China (Grant No. 71025006, 71373161, 71390525, 71573185) and funded by the Ministry of Education of Humanities and Social Science Project (Grant No. 14YJC630100).

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Authors and Affiliations

  1. School of Politics and Public Administration, Soochow University, Suzhou, 215006, China

    X. H. Meng

  2. Antai School of Management, Shanghai Jiaotong University, Shanghai, 200052, China

    S. X. Zeng

  3. School of Management, Shanghai University, Shanghai, 200231, China

    X. M. Xie

  4. School of Business, East China University of Science and Technology, Shanghai, 200237, China

    G. Y. Qi

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Meng, X.H., Zeng, S.X., Xie, X.M. et al. The impact of product market competition on corporate environmental responsibility. Asia Pac J Manag 33, 267–291 (2016). https://doi.org/10.1007/s10490-015-9450-z

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