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Does environmental regulation affect firms' ESG performance? Evidence from China

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  • Shiyu Lu
  • Bo Cheng

Abstract

Taking the advantage of the revise “Environmental Protection Law” implemented in China as an exogenous shock event, we evaluate the impact of environmental regulation on firms' ESG performance by the difference‐in‐difference approach. We find that this policy improves state‐owned firms' ESG performance. Additionally, our results demonstrate that better ESG performance encourages firms' stock liquidity, and the stock liquidity of state‐owned firms with high ESG performance is stronger than that of private firms after the policy. These findings highlight the importance of environmental regulation, which provide significant meanings for encouraging firms' social responsibility, formulating ESG related policies, and promoting sustainable development.

Suggested Citation

  • Shiyu Lu & Bo Cheng, 2023. "Does environmental regulation affect firms' ESG performance? Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2004-2009, June.
    • Handle: RePEc:wly:mgtdec:v:44:y:2023:i:4:p:2004-2009
    DOI: 10.1002/mde.3796
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    References listed on IDEAS

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    1. Wu, Zihao & Gao, Jun & Luo, Chengdi & Xu, Hui & Shi, Guanqun, 2024. "How does boardroom diversity influence the relationship between ESG and firm financial performance?," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 713-730.
    2. Wang, Ren & Bian, Yuxiang & Xiong, Xiong, 2024. "Impact of ESG preferences on investments and emissions in a DSGE framework," Economic Modelling, Elsevier, vol. 135(C).
    3. Liu, Xiaoqian & Cifuentes-Faura, Javier & Zhao, Shikuan & Wang, Long, 2024. "The impact of government environmental attention on firms’ ESG performance: Evidence from China," Research in International Business and Finance, Elsevier, vol. 67(PA).
    4. Li, Junjun & Wu, Tong & Liu, Bailu & Zhou, Ming, 2024. "Can digital transformation enhance corporate ESG performance? The moderating role of dual environmental regulations," Finance Research Letters, Elsevier, vol. 62(PB).

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