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Environmental regulation and corporate financial asset allocation: A natural experiment from the new environmental protection law in China

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  • Liu, Xing
  • Liu, Fengzhong

Abstract

Taking the implementation of the new environmental protection law in 2015 as a quasi-natural experiment, we use the difference-in-differences (DID) approach to investigate the impact of stringent environmental regulation on financial asset investment of high polluting firms. We find robust evidence that the new environmental protection law has a negative effect on corporate investment in financial assets. The effect works by increasing corporate environmental protection investment. Furthermore, we find that the negative effect of the new environmental protection law on financial investments of high polluting firms is more pronounced for small-scale firms, firms in industries with greater competition, and firms in regions with good legal environment. Overall, this study complements the existing literature by illustrating how strict environmental regulation affects corporate financial policies.

Suggested Citation

  • Liu, Xing & Liu, Fengzhong, 2022. "Environmental regulation and corporate financial asset allocation: A natural experiment from the new environmental protection law in China," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612322002239
    DOI: 10.1016/j.frl.2022.102974
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    5. Wunhong Su & Xingxing Hu & Liuzhen Zhang, 2023. "Association Between Directors With Foreign Experience and Firms’ Environmental Disclosure," SAGE Open, , vol. 13(4), pages 21582440231, December.
    6. Dandan Zhu & Xinping Tao & Meibo Huang, 2023. "Law Reinforcement, Production Pattern and Enterprise Environmental Performance: Evidence from Environmental Courts in China," Sustainability, MDPI, vol. 15(5), pages 1-20, March.
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    8. Xin Jiang & Guanglong Li & Xianxian Fan, 2023. "Environmental Protection Fee-to-Tax and Corporate Environmental Social Responsibility: A Test Based on Corporate Life Cycle Theory," Sustainability, MDPI, vol. 15(3), pages 1-21, January.
    9. Jingjing Qian & Chao Chen & Yun Zhong, 2022. "Environmental Regulation and Sustainable Growth of Enterprise Value: Mediating Effect Analysis Based on Technological Innovation," Sustainability, MDPI, vol. 14(21), pages 1-16, October.

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