How do heavily polluting firms cope with dual environmental regulation? A study from the perspective of financial asset allocation

In view of the current debate on the relationship between environmental regulation and firm financial asset allocation (FFAA), this study explores the compound effect of binding environmental regulation (BER) and public environmental engagement (PEE) on FFAA. The results show that the single constraint of BER cannot effectively inhibit FFAA, and that the governance effect can only be produced in coordination with PEE. In particular, in state-owned enterprises, areas with a high marketization level, and areas with strong environmental supervision, the synergistic governance effect of dual environmental regulation is more obvious. The inhibition effect mainly depends on the reduction of long-term FFAA, and can simultaneously improve firms' economic and environmental benefits. A mechanism analysis finds that strengthening firm research and development (R&D) innovation and improving total factor productivity are important channels through which dual environmental regulation can collaboratively govern firms to avoid the shift from the real economy to the virtual economy. This study provides new insights for the analysis of the real economy from the perspective of environmental regulation, and also serves as a reference for the improvement of multiple collaborative environmental governance systems.