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The illusion of “win–win” solution: Why environmental regulation in china promotes firm performance?

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  • Fu, Tong
  • Cai, Chao
  • Jian, Ze

Abstract

Porter (1991) and follow-up scholars hypothesize that environmental regulation stimulates innovation to promote performance. As a complement to the existing literature, this paper reveals an ironic reality: performance-friendly regulation as a proxy for the “win–win” solution of environmental regulation is an illusion due to ineffective intensity for sustainability. With firm-level evidence from China, we measure the intensity of environmental regulation by a firm's investments for environmental protection (IEP) or fees for environmental protection (FEP). After identifying a positive causal effect on performance of IEP or FEP, we document that IEP and FEP are complementary and thus ineffective for sustainable development. We further document that the effects between IEP and FEP are mediated by performance insignificantly from an economic perspective, thereby revealing the incentive incompatibility of a firm in IEP and FEP.

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  • Fu, Tong & Cai, Chao & Jian, Ze, 2020. "The illusion of “win–win” solution: Why environmental regulation in china promotes firm performance?," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 366-373.
    • Handle: RePEc:eee:streco:v:52:y:2020:i:c:p:366-373
    DOI: 10.1016/j.strueco.2019.12.007
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    Cited by:

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    4. Hongyi Zhang & Hsing Hung Chen & Kunseng Lao & Zhengyu Ren, 2022. "The Impacts of Resource Endowment, and Environmental Regulations on Sustainability—Empirical Evidence Based on Data from Renewable Energy Enterprises," Energies, MDPI, vol. 15(13), pages 1-14, June.
    5. Chun Lin & Gengrui Cui & Yingjie Sun, 2023. "Labor allocation: How environmental regulation promotes industrial structure," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 1995-2003, June.
    6. Guanghui Tian & Jianming Miao & Changhong Miao & Yehua Dennis Wei & Dongyang Yang, 2022. "Interplay of Environmental Regulation and Local Protectionism in China," IJERPH, MDPI, vol. 19(10), pages 1-21, May.
    7. Yanli Li & Jiayuan Li & Luyao Gan, 2022. "A Meta-Analysis of the Relationship between Environmental Regulations and Competitiveness and Conditions for Its Realization," IJERPH, MDPI, vol. 19(13), pages 1-12, June.
    8. Qiwen Dai & Huihua Huang & Xiaoqi Zhang & Yumin Su & Cheyuan Liu & Qiangyi Li, 2022. "Mediation Effect of Corporate Tax Burden and the Relationship between Environmental Regulation and Firm Performance," IJERPH, MDPI, vol. 19(22), pages 1-23, November.

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    More about this item

    Keywords

    China; environmental regulation; firm performance;
    All these keywords.

    JEL classification:

    • P39 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Other
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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