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Promoting or Inhibiting? The Impact of Environmental Regulation on Corporate Financial Performance—An Empirical Analysis Based on China

Author

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  • Xiang Deng

    (School of Economics, Sichuan University, No. 24 South Section 1 Yihuan Road, Chengdu 610065, China)

  • Li Li

    (School of Economics, Sichuan University, No. 24 South Section 1 Yihuan Road, Chengdu 610065, China)

Abstract

Today, environmental protection has become a global issue, and various environmental regulations have been actively adopted. However, are these measures promoting or harming enterprise values? Is this effect the same for enterprises with different ownership backgrounds? In order to address these problems, we conducted an empirical analysis of China’s A-share market to investigate the relationship between the New Environmental Protection Law (NEPL) launched in China and corporate financial performance, and further explore the impact of environmental supervision intensity (ESI) from the perspective of ownership. The empirical results show that there is a negative correlation between NEPL and the financial performance of high pollution enterprises. Further analysis demonstrates that there is an inverted U-shape relationship between ESI and corporate financial performance for both state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs), while the financial performance of SOEs is more sensitive and tolerant to environmental regulation than that of non-SOEs. Finally, we make recommendations for the future direction of China’s ecological civilization construction and sustainable development of enterprises based on three aspects: environmental awareness, policy considerations, and sustainable development. The innovation of this paper lies in putting NEPL and corporate financial performance in the same analytical framework for the first time, which enriches the research in this field. Meanwhile, it provides a new perspective for understanding the relationship between ESI and corporate financial performance through the analysis of nonlinearity and owner heterogeneity.

Suggested Citation

  • Xiang Deng & Li Li, 2020. "Promoting or Inhibiting? The Impact of Environmental Regulation on Corporate Financial Performance—An Empirical Analysis Based on China," IJERPH, MDPI, vol. 17(11), pages 1-17, May.
    • Handle: RePEc:gam:jijerp:v:17:y:2020:i:11:p:3828-:d:364093
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