Centralized environmental legislation, local enforcement discretion disparities, and firm green mergers and acquisitions: Evidence from China

China's central government is seeking to balance regional protection gaps when enacting environmental laws to achieve fair and efficient environmental enforcement. However, in-depth discussion is lacking about the heterogeneous shock of “one-size-fits-all” regulations on local enforcement discretion. Using manually collected data on 4384 Chinese listed firms from 2003 to 2022 and the typical difference-in-differences model, this paper empirically examines the impact of the Environmental Protection Law Amendment (EPLA) on firms' green mergers and acquisitions (GM&As). Disparities in local governments' economic favoritism–based environmental enforcement discretion are conceptualized to distinguish the magnitude of EPLA effects on firms in different regions. Results reveal a significant and enduring boost from EPLA implementation on firms' G&MA activities, especially for green firms, and these findings persist after a series of robustness checks. The impact appears significantly stronger for non-state-owned and non–heavily polluting firms but weaker for firms with high internal control. Mechanism analysis suggests that EPLA implementation indirectly endorses firms' GM&As by raising local governments' environmental awareness and contributing to firms' green executive team building. By introducing an important legal concept into environmental research, this study highlights a discrepancy between the development and enforcement of governmental environmental regulations. The results provide meaningful implications for academics and policymakers.