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Foreign direct investment concessions and environmental levies in China

Author

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  • Chen, Qiu
  • Maung, Min
  • Shi, Yulin
  • Wilson, Craig

Abstract

We investigate how foreign involvement in the ownership of privately held entrepreneurial firms affects pollution fees levied by national and provincial governments in China (environmental levies). Because provincial governments have considerable control over environmental policies, differences in environmental levies provide a good proxy for measuring provincial concessions made for the purpose of attracting investment, and particularly foreign direct investment (FDI). Furthermore, because we consider privately held entrepreneurial firms rather than publically listed firms, foreign involvement in ownership provides a good proxy for FDI. We find that firms with foreign ownership do indeed pay lower environmental levies, which indicates that concessions are made to attract FDI to China. However, these concessions are conditional on the level of development of the province offering them, with better developed provinces providing fewer concessions for FDI. We also find that greater concessions are made to foreign joint venture firms having a foreign ownership stake of less than or equal to 50%.

Suggested Citation

  • Chen, Qiu & Maung, Min & Shi, Yulin & Wilson, Craig, 2014. "Foreign direct investment concessions and environmental levies in China," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 241-250.
    • Handle: RePEc:eee:finana:v:36:y:2014:i:c:p:241-250
    DOI: 10.1016/j.irfa.2013.12.002
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    Cited by:

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    2. Xun Cao & Qing Deng & Xiaojun Li & Zijie Shao, 2022. "Fine me if you can: Fixed asset intensity and enforcement of environmental regulations in China," Regulation & Governance, John Wiley & Sons, vol. 16(4), pages 983-1004, October.
    3. Xiaoyan Li & Hengzhou Xu, 2020. "Effect of local government decision‐making competition on carbon emissions: Evidence from China's three urban agglomerations," Business Strategy and the Environment, Wiley Blackwell, vol. 29(6), pages 2418-2431, September.
    4. Xiang Cao & Ping Wang & Bangzhu Zhu, 2018. "Has foreign direct investment increased air pollution in China? A hierarchical linear model approach," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 91(2), pages 659-669, March.
    5. Chen, Wenchuan & Xiang, Yuhan & Liu, Jin & Zhu, Yilin, 2022. "Foreign investor and industrial pollution: Evidence from sulfur dioxide emission," Finance Research Letters, Elsevier, vol. 50(C).
    6. Jing Xu & Min Zhou & Hailong Li, 2016. "ARDL-based research on the nexus among FDI, environmental regulation, and energy consumption in Shanghai (China)," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 84(1), pages 551-564, October.
    7. Da Gao & Yi Li & Qiuyue Yang, 2021. "Can pollution charges reform promote industrial SO2 emissions reduction?—Evidence from 189 China’s cities," Energy & Environment, , vol. 32(1), pages 96-112, February.
    8. Min Maung & Craig Wilson & Xiaobo Tang, 2016. "Political Connections and Industrial Pollution: Evidence Based on State Ownership and Environmental Levies in China," Journal of Business Ethics, Springer, vol. 138(4), pages 649-659, November.
    9. Arthelo P. PALMA, 2016. "Truth Behind Economic Performance, Natural Resources and Attracting Foreign Direct Investment," Expert Journal of Economics, Sprint Investify, vol. 4(2), pages 68-77.
    10. Jiangfeng Hu & Zhao Wang & Qinghua Huang & Xiaoqin Zhang, 2019. "Environmental Regulation Intensity, Foreign Direct Investment, and Green Technology Spillover—An Empirical Study," Sustainability, MDPI, vol. 11(10), pages 1-15, May.
    11. Sam, Abdoul G. & Zhang, Xiaodong, 2020. "Value relevance of the new environmental enforcement regime in China," Journal of Corporate Finance, Elsevier, vol. 62(C).

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    More about this item

    Keywords

    FDI; Subnational concessions; Pollution fees; Provincial development; Private equity; Entrepreneurial firms;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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