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Environmental Regulation and Corporate Financing—Quasi-Natural Experiment Evidence from China

Author

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  • Xinghe Liu

    (School of Management, Xiamen University, Xiamen 361005, China)

  • Enxian Wang

    (Institute for Financial and Accounting Studies, Xiamen University, Xiamen 361005, China)

  • Danting Cai

    (School of Hotel and Tourism Management, the Hong Kong Polytechnic University, Hong Kong, China)

Abstract

The Environmental Protection Law, which includes 70 articles and major changes in six aspects compared to the old law, is called in Chinese society the new Environment Protection Law. When the law was implemented in 2014, it was an important event in China that could be seen as a natural experiment. Based on a difference-in-differences model, this paper considers all of the listed heavily polluting enterprises between 2011 and 2016 as the experimental group and all of the other firms in the same industries listed on the Chinese stock market as the control group and examines the impact of the new Environmental Protection Law on the corporate financing of heavily polluting enterprises and its mechanisms. The results show that the strict environmental law caused Chinese listed enterprises to face higher environmental regulation costs, public pressure and environmental litigation. The financing capacity of heavily polluting enterprises has dropped significantly, especially in areas with higher regulatory intensity. Furthermore, since the new Environmental Protection Law was established, overinvestment by China’s heavily polluting enterprises has been significantly inhibited, and the decline in financing capacity exerts a mediating effect. The ultimate economic consequences of the new Environmental Protection Law are to decrease the corporate value of heavily polluting industries.

Suggested Citation

  • Xinghe Liu & Enxian Wang & Danting Cai, 2018. "Environmental Regulation and Corporate Financing—Quasi-Natural Experiment Evidence from China," Sustainability, MDPI, vol. 10(11), pages 1-22, November.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:11:p:4028-:d:180248
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    Cited by:

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    2. Quan Guo & Min Zhou & Nana Liu & Yaoyu Wang, 2019. "Spatial Effects of Environmental Regulation and Green Credits on Green Technology Innovation under Low-Carbon Economy Background Conditions," IJERPH, MDPI, vol. 16(17), pages 1-16, August.
    3. Liao, Tianlong & Liu, Guanchun & Liu, Yuanyuan & Lu, Rui, 2023. "Environmental regulation and corporate employment revisited: New quasi-natural experimental evidence from China's new environmental protection law," Energy Economics, Elsevier, vol. 124(C).
    4. Sun, Jiamu & Xue, Jiaan & Qiu, Xiaodong, 2023. "Has the sustainable energy transition in China's resource-based cities promoted green technology innovation in firms?," Socio-Economic Planning Sciences, Elsevier, vol. 87(PA).
    5. Xinpeng Xing & Tiansen Liu & Lin Shen & Jianhua Wang, 2020. "Linking Environmental Regulation and Financial Performance: The Mediating Role of Green Dynamic Capability and Sustainable Innovation," Sustainability, MDPI, vol. 12(3), pages 1-22, January.
    6. Li, Jianglong & Gao, Jinfeng & Liao, Meiling, 2024. "Operating risk of enterprises when adopting environmental regulation: Evidence from environmental protection law in China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 901-914.
    7. Guoyong Wu & Mengmin Sun & Yanchao Feng, 2024. "How does the new environmental protection law affect the environmental social responsibility of enterprises in Chinese heavily polluting industries?," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-14, December.
    8. Guangyuan Xing & Youheng Zhang & Ju’e Guo, 2023. "Environmental Regulation in Evolution and Governance Strategies," IJERPH, MDPI, vol. 20(6), pages 1-25, March.
    9. Shi, Jinyan & Yu, Conghui & Li, Yanxi & Wang, Tianhe, 2022. "Does green financial policy affect debt-financing cost of heavy-polluting enterprises? An empirical evidence based on Chinese pilot zones for green finance reform and innovations," Technological Forecasting and Social Change, Elsevier, vol. 179(C).
    10. Liu, Xinghe & Wang, Enxian & Cai, Danting, 2019. "Green credit policy, property rights and debt financing: Quasi-natural experimental evidence from China," Finance Research Letters, Elsevier, vol. 29(C), pages 129-135.
    11. Liu, Xinghe & Xu, Huifeng & Lu, Meiting, 2021. "Do auditors respond to stringent environmental regulation? Evidence from China’s new environmental protection law," Economic Modelling, Elsevier, vol. 96(C), pages 54-67.
    12. Xiang Deng & Li Li, 2020. "Promoting or Inhibiting? The Impact of Environmental Regulation on Corporate Financial Performance—An Empirical Analysis Based on China," IJERPH, MDPI, vol. 17(11), pages 1-17, May.
    13. Qian Zhao & Chi-Wei Su, 2023. "The Nexus Between Air Pollution and Outward Foreign Direct Investment," SAGE Open, , vol. 13(1), pages 21582440221, January.
    14. Zhou, Di & Qiu, Yuan & Wang, Mingzhe, 2021. "Does environmental regulation promote enterprise profitability? Evidence from the implementation of China's newly revised Environmental Protection Law," Economic Modelling, Elsevier, vol. 102(C).
    15. Yingli Wu & Guangji Tong, 2022. "The evaluation of agricultural enterprise's innovative borrowing capacity based on deep learning and BP neural network," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 13(3), pages 1111-1123, December.
    16. Yang, Jingyi & Shi, Daqian & Yang, Wenbo, 2022. "Stringent environmental regulation and capital structure: The effect of NEPL on deleveraging the high polluting firms," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 643-656.
    17. Xixiong Xu & Lingling Duan & Youliang Yan, 2019. "The Influence of Confucianism on Corporate Environmental Investment: Evidence from Chinese Private Firms," Sustainability, MDPI, vol. 11(21), pages 1-20, October.

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