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Environmental regulation and corporate employment revisited: New quasi-natural experimental evidence from China's new environmental protection law

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  • Liao, Tianlong
  • Liu, Guanchun
  • Liu, Yuanyuan
  • Lu, Rui

Abstract

This paper investigates how environmental regulation affects corporate hiring decisions. Using the enactment of China's New Environmental Protection Law in 2015 as an exogenously regulatory shock, we run a difference-in-differences regression to identify causality. The results show that stricter environmental regulation significantly reduces corporate employment by approximately 5.1% on average. This negative effect is stronger for firms with greater liquidity constraints, worse environmental performance, higher labor intensity, more severe labor market frictions, and regions under stricter law enforcement. In addition, the mechanism tests reveal that stricter environmental regulation conduces to higher environmental risks, less debt financing, and higher liquidity constraints, which is consistent with the financial constraints channel. Overall, the government should take the employment destruction effect of environmental regulation seriously, especially during periods of climate warming and the coronavirus disease pandemic.

Suggested Citation

  • Liao, Tianlong & Liu, Guanchun & Liu, Yuanyuan & Lu, Rui, 2023. "Environmental regulation and corporate employment revisited: New quasi-natural experimental evidence from China's new environmental protection law," Energy Economics, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:eneeco:v:124:y:2023:i:c:s0140988323003006
    DOI: 10.1016/j.eneco.2023.106802
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    More about this item

    Keywords

    Environmental regulation; Corporate employment; Liquidity constraints; China;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law

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