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Do environmental regulations affect firm financial distress in China? Evidence from stock markets

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  • Yu He
  • Huan Zheng

Abstract

This study explores how environmental regulations affected firm financial distress in China from 1999 to 2018, when the national strategy experienced a major adjustment from economic development only to sustainable growth. Instead of targeting specific environmental policy, we divide environmental regulations for firms into two major types, including energy conservation and pollution reduction, and discuss the influences of the overall levels of Chinese environmental regulations in the last two decades. We find that these regulations were negatively associated with firm performance, positively related to the possibility of financial distress, and negatively associated with the length of distress time. Our additional tests also show that the two types of environmental regulations had different influences on firm financial distress for various firm characteristics, including state ownership and industries. The empirical results remain robust when alternative measures of financial distress and potential endogenous issues are controlled.

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  • Yu He & Huan Zheng, 2022. "Do environmental regulations affect firm financial distress in China? Evidence from stock markets," Applied Economics, Taylor & Francis Journals, vol. 54(38), pages 4384-4401, August.
    • Handle: RePEc:taf:applec:v:54:y:2022:i:38:p:4384-4401
    DOI: 10.1080/00036846.2022.2030048
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    Cited by:

    1. 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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