Beyond environmental actions: How environmental regulations stimulate strategic-political CSR engagement in China?

Departing from conventional approaches of environmental actions in response to stricter environmental regulations, our paper leverages the rent-seeking theory to propose that firms engage in strategic-political corporate social responsibility (CSR) activities to obtain environmental legitimacy, which complements the local government's duty of social welfare provision. By selecting the enforcement of China's new Environmental Protection Law (NEPL) as an exogenous shock, our standard difference-in-difference model confirms that NEPL has significantly increased the strategic-political CSR engagement, and it creates a shelter against environmental penalty. The findings remain robust when employing the continuous difference-in-difference model and the triple difference model to relieve concerns regarding comparability between the treated group and control group. Further, the positive effect is attenuated by sound financial condition and strong law enforcement. Our paper extends the understanding of the reciprocal relationship between regulated firms and local governments during the environmental transition process in China, and, potentially, in other developing countries with similar decentralization system and government intervention.