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Does command-based environmental regulation affect corporate labor income share? Micro evidence from China

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Listed:
  • Lin, Xiaowen
  • Liu, Hancheng
  • Luo, Yueli
  • Sun, Li
  • Long, Houyin

Abstract

Developing countries are confronted with the dual pressures of advancing a low-carbon transition and coping with a falling labor income share. Utilizing data from China’s A-share listed companies from 2011 to 2019, this paper empirically examines the impact of command-and-control (CAC) environmental regulation on corporate labor income share and explores the underlying mechanisms from a micro perspective. The results indicate that CAC environmental regulation, proxied by environmental penalties, significantly reduces the labor income share. Further evidence suggests that capital crowding out and financing constraints are the main channels through which this effect unfolds. Heterogeneity analysis reveals that state-owned enterprises (SOEs) with greater environmental investment incentives and companies with lower employee bargaining power experience a more pronounced negative effect on labor income share. This suggests the need for more adaptable, effective regulatory frameworks that support sustainable environmental strategies to achieve a win-win situation for environmental governance and factor distribution.

Suggested Citation

  • Lin, Xiaowen & Liu, Hancheng & Luo, Yueli & Sun, Li & Long, Houyin, 2026. "Does command-based environmental regulation affect corporate labor income share? Micro evidence from China," Finance Research Letters, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:finlet:v:89:y:2026:i:c:s1544612325025814
    DOI: 10.1016/j.frl.2025.109332
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