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Do Politically Connected Firms Pay Less Toward Environmental Protection? Firm‐level Evidence from Polluting Industries in China

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  • Lihong Wang
  • Shaoqing Kang
  • Hongjun Wu

Abstract

This study empirically investigates the role of political connections in corporate environmental spending. It employs a sample of listed Chinese firms from polluting industries within the 2010–2013 period. Our empirical results show that having politicians as directors reduces the magnitude of discharge fees. We also find that such reductions are more pronounced in firms with a higher ratio of politically connected directors (i.e., listed Chinese polluting firms that are privately controlled). This negative relationship is robust to various model specifications (e.g., a sample of polluting firms after addressing the sample selection bias and reverse causality without an increase in new investment). Moreover, we observe that the negative relationship between political connections and discharge fees is stronger in listed Chinese polluting firms located in more polluted regions. Meanwhile, a polluting firm's incentive to engage in environmental protection, measured by firm‐level environmental awards (incidents), alleviates (exacerbates) the negative relationship. Finally, the impact of politically connected directors on discharge levies is explicitly driven by having local officials and officials from the home province as directors.

Suggested Citation

  • Lihong Wang & Shaoqing Kang & Hongjun Wu, 2021. "Do Politically Connected Firms Pay Less Toward Environmental Protection? Firm‐level Evidence from Polluting Industries in China," Abacus, Accounting Foundation, University of Sydney, vol. 57(2), pages 362-405, June.
    • Handle: RePEc:bla:abacus:v:57:y:2021:i:2:p:362-405
    DOI: 10.1111/abac.12210
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    2. Shaorou Hu & Ming Liu & Nan Liu & Xialin Guo, 2024. "Do State Ownership and Political Connections Affect Precautionary Cash Holdings for Customer Concentration? Evidence from China," Abacus, Accounting Foundation, University of Sydney, vol. 60(2), pages 305-337, June.

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