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Environmental responsibility governance: Local environmental legislation influence on corporate environmental investment decisions

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  • Hu, Yuge
  • Dong, Yifei
  • Paraman, Pradeep

Abstract

This study examines the impact of local environmental legislation on corporate environmental investment, using data from Chinese A-share listed companies from 2011 to 2022. The findings reveal that stricter local environmental regulations significantly encourage firms to increase environmental investments. This effect is further amplified by environmental fines, which serve as a mediating mechanism. Additionally, the quality of internal corporate controls enhances the effectiveness of these regulations. A heterogeneity analysis shows that the positive influence of local environmental legislation on corporate environmental investment is more pronounced in state-owned enterprises and firms operating in economically developed regions.

Suggested Citation

  • Hu, Yuge & Dong, Yifei & Paraman, Pradeep, 2025. "Environmental responsibility governance: Local environmental legislation influence on corporate environmental investment decisions," Finance Research Letters, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:finlet:v:79:y:2025:i:c:s1544612325005136
    DOI: 10.1016/j.frl.2025.107250
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    1. Tian, Lihui & Wu, Haifeng & Zhu, Xiaoman, 2025. "Does climate risk perception drive the realization of corporate environmental responsibility?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 47(C).

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