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Does enhancing environmental regulation promote corporate green investment? Evidence from China

Author

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  • Wen-Quan Hu
  • Jingyu Zhao
  • Lexin Zhao

Abstract

This paper exploits a quasi-natural experiment in China, the environmental protection tax reform, to examine the effect of environmental regulation on corporate green investment. Based on Chinese listed company data and the multi-period DID method, we find the enhancement of environmental regulation harms corporate green investment in a short time, and green investments in the treatment group were reduced by 19.57 million (RMB) on average. Further exploring and examining the potential mechanisms of the above effect, we find the above effect is caused by the suppression effect of financing constraints and the crowding-out effect of research and development (R&D) expenditures. We also analyze the heterogeneity of enterprise ownership, enterprise size, and enterprise location, and find that non-state-owned enterprises, small-sized enterprises, and enterprises in the eastern region will experience a greater reduction in green investment when environmental regulation is enhanced. Based on the above findings, we put forward corresponding policy recommendations.

Suggested Citation

  • Wen-Quan Hu & Jingyu Zhao & Lexin Zhao, 2023. "Does enhancing environmental regulation promote corporate green investment? Evidence from China," Energy & Environment, , vol. 34(8), pages 3265-3291, December.
    • Handle: RePEc:sae:engenv:v:34:y:2023:i:8:p:3265-3291
    DOI: 10.1177/0958305X221122931
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