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Does environmental regulation promote corporate green investment? Evidence from China’s new environmental protection law

Author

Listed:
  • Sheng Liu

    (Guangdong University of Foreign Studies)

  • Heming Liu

    (Nankai University)

  • Xiuying Chen

    (Guangdong University of Finance)

Abstract

Green investment is crucial to achieving the green transformation goal. Under increasingly strict environmental protection laws and regulations, whether it can induce the “Porter Hypothesis” effect and stimulate the green investment of enterprises is still controversial. This paper takes the China’s new environmental protection law (NEPL) as a quasi-natural experiment, uses the green investment data of listed companies in China’s heavy pollution industry, and applies the method of propensity score matching and difference-in-difference (PSM-DID) to verify whether the implementation of the law conforms to the “strong Porter Hypothesis.” The results show that as a strict command-and-control environmental regulation tool, the implementation of NEPL has significantly promoted corporate’s green investments in heavily polluting industries. The implementation of the NEPL guides to more standardized environmental disclosure regulation, stricter environmental enforcement, and severer financial constraints, and thus propel corporate’s green investment. In addition, heterogeneity analysis indicates that the effect of NEPL is more significant in those samples of enterprises located in the regions with higher industrial concentration degree or with higher level of government environmental governance, enterprises of small and medium type, and enterprises with better financial performance and higher degree of equity incentive. To achieve the carbon peaking and carbon neutrality goals, this paper provides evidence to test whether “Porter Hypothesis” is established in transition economies from the view of environmental investment and provides reference for how developing country can further enrich their environmental regulation system and optimize enterprise’s environmental protection strategies.

Suggested Citation

  • Sheng Liu & Heming Liu & Xiuying Chen, 2024. "Does environmental regulation promote corporate green investment? Evidence from China’s new environmental protection law," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(5), pages 12589-12618, May.
    • Handle: RePEc:spr:endesu:v:26:y:2024:i:5:d:10.1007_s10668-023-03933-3
    DOI: 10.1007/s10668-023-03933-3
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