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The motivation and impact of polluting Enterprises' diversifications: Quasi-natural experiments from environmental protection interview

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  • Sun, Xing
  • Lin, Minzhen
  • Zhong, Huaming

Abstract

In the background of China's central government's intensive efforts to prevent and control pollution, a deep understanding of the enterprises' short-term strategic behavior is essential to the implementation of environmental policies. This paper identifies the impact of Environmental Protection Interview (EPI) on the diversification of polluting enterprises using a difference-in-differences method with a sample of listed companies in A-share market from 2010 to 2020. The study finds that: First, EPI significantly contribute to the diversification of polluting enterprises in the interviewed areas. Second, sewage charges increase the cost of compliance with environmental regulations and push back diversified behaviors of polluting enterprises, while environmental subsidies help enterprises to identify the pathways to cleaner production and weaken the level of diversification of polluting enterprises. Finally, the inherent motivation for the diversified practices of the polluters in the interviewed areas is not to alleviate the financing constraints of the enterprises but is the benefit encroachment by major shareholders and the self-interest pursuit of high remuneration by the senior managers, and it ultimately leads to a decrease in the value of polluting enterprises and the scale of environmental protection investment. This paper not only extends the study on the short-term strategic behavior of firms in response to environmental regulation but also provides important empirical evidence to understand the drivers and consequences of corporate diversification.

Suggested Citation

  • Sun, Xing & Lin, Minzhen & Zhong, Huaming, 2024. "The motivation and impact of polluting Enterprises' diversifications: Quasi-natural experiments from environmental protection interview," Energy Economics, Elsevier, vol. 129(C).
    • Handle: RePEc:eee:eneeco:v:129:y:2024:i:c:s0140988323007016
    DOI: 10.1016/j.eneco.2023.107203
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