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Does distance matter? Geographic proximity to EPBs and corporate environmental investment: Evidence from China

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  • Yang, Xiaotong
  • Zhang, Yuan
  • Zhu, Bing
  • Shen, Liding

Abstract

This study investigates the impact of geographic proximity to Environmental Protection Bureaus (EPBs) on corporate environmental investments by firms in heavily polluting industries. Using a sample of Chinese A-share listed companies in heavily polluting industries from 2000 to 2020, we find that geographic proximity to EPBs is positively associated with corporate environmental investment. Specifically, firms located closer to EPBs tend to invest more in environmental protection. This relationship remains robust even after addressing potential endogeneity concerns and holds consistently across alternative measures of regulatory distance and various city classifications. Mechanism analysis reveals that the increased environmental investment induced by geographic proximity to EPBs occurs through the strengthened local government environmental enforcement. Further analysis indicates that the negative impact of greater geographic distance on environmental investment is more pronounced for firms operating in opaque information environments and those facing higher transportation costs. Additionally, cross-sectional tests show that this negative effect is more pronounced when EPBs face greater environmental protection pressures and when firms are state-owned enterprises (SOEs) or face fewer financial constraints. Overall, our study identifies geographic proximity to EPBs as a critical factor influencing corporate environmental investment.

Suggested Citation

  • Yang, Xiaotong & Zhang, Yuan & Zhu, Bing & Shen, Liding, 2025. "Does distance matter? Geographic proximity to EPBs and corporate environmental investment: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:pacfin:v:92:y:2025:i:c:s0927538x25001295
    DOI: 10.1016/j.pacfin.2025.102792
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