Can environmental regulations improve the investment efficiency of heavily polluting firms? A quasi-natural experiment in China

ABSTRACT

In light of China’s implementation of the Environmental Protection Tax Law (EPT Law) on 1 January 2018, this paper empirically investigates the influence of environmental regulations on the investment behaviour of heavily polluting firms using a difference-in-differences (DID) model. The EPT Law is found to improve the investment efficiency of heavily polluting firms by restraining overinvestment, an effect that applies mainly to private firms, particularly those with no political affiliations. This paper enriches the existing research on the economic consequences of the EPT Law by integrating environmental regulations, property rights, political affiliation and investment efficiency into a unified framework. This study’s findings are instructive for understanding the economic effects of environmental regulations.

KEYWORDS:

• Environmental regulations
• environmental protection tax law
• investment efficiency
• heavily polluting firms

JEL CLASSIFICATION:

• G32
• M21
• M41

Disclosure statement

No potential conflict of interest was reported by the author(s).