Does Entrepreneur Invest More in Environmental Protection When Joining the Communist Party? Evidence from Chinese Private Firms

ABSTRACT

This study examines the role of affiliation with the ruling Communist Party in corporate environmental investment. Using a nationwide survey of Chinese private firms, we find that the Party membership of private entrepreneurs has a positive effect on corporate environmental investment, which suggests that Party status severs as a communication bridge and goal coordinator between the government and firms, thus encouraging them to participate more in environmental activities. Furthermore, this effect is more prominent when firms are located in regions with stricter legal supervision and lower levels of corruption, involve in a government-created business association and have better performance in profitability. Mechanism tests show that entrepreneurs with Party membership will promote firms to form a closer government-firm interaction and develop a better sense of social responsibility. Our findings highlight the entrepreneur’s Party status as an important driver of environmentally responsible corporate decision-making.

KEYWORDS:

• Party membership
• corporate environmental investment
• Chinese private firms

Notes

1. According to the China Ecological Environment Bulletin in 2018, among the 338 Chinese prefecture-level cities, 217 cities failed to meet the air quality standards, accounting for 64.2%, which seriously affected people’s physical health and daily life.

2. Since the “Environmental Protection Law of the People’s Republic of China (trail)” was first promulgated in 1979, Chinese government has successively promulgated 43 relevant laws, 140 administrative regulations and rules, and more than 900 normative documents to address environmental issues and guide enterprises toward a sustainable development path.

3. The National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) are the two most important political organizations in China’s institutional system. NPC is China’s highest authority and legislature; while CPPCC is an advisory body to an advisory body for the ruling Party and government, and its function is to hold political consultations and conduct democratic supervision over the Party and government.

4. According to the “40-year China Private Economy Research Report” in 2018, Chinese private enterprises have paid more than 50% of the country’s tax revenue, created more than 60% of gross domestic product (GDP), contributed more than 70% of technological innovations, and provided more than 80% of urban jobs.

5. When the dependent variable is Env₂ (Env₃), we use the random data to run Tobit model, and then obtain similar findings. That is, the distribution of Party coefficients from the 1000 random assignments is still centered around zero, and the benchmark Party estimate from Table 4 is located outside the entire distribution.

6. In the process of managing provincial affairs, the governor mainly focuses on regional economic development, such as attracting investment, promoting production and developing commerce; while the Party secretary focuses on the cause of people’s livelihood, such as social welfare, regional employment, ecological environment, etc.

7. According to the Statistic Bulletin of the CPC in 2017, there are 1.877 million nonpublic firms in China establishing Party branches, accounting for 73.1%.

Additional information

Funding

We acknowledge the support from the National Natural Science Foundation of China [71972017, 71572019, 71802169], the Philosophy and Social Sciences Research of Ministry of Education of China [18JHQ079], the Key Project of Philosophy and the Social Sciences Research of Chongqing Municipal Education Commission [19SKZDZX11] and the Graduate Scientific Research and Innovation Foundation of Chongqing (CYB20049, CYS20051).