Government Engagement, Environmental Policy, and Environmental Performance: Evidence from the Most Polluting Chinese Listed Firms

Abstract

This study empirically examines the implementation of environmental policies and how government engagement impacts on a firm's environmental performance based on a sample of Chinese listed firms in the eight most polluting industries over a 10-year period. The findings of the study demonstrate that government engagement, measured as ownership structure, is positively correlated with environmental performance, measured by environmental capital expenditure, for state-owned firms, but no significant relation is found for non-state-owned firms. In addition, non-state-owned firms are more likely to perform better in terms of environmental investment after the 2006 enactment of a new policy explicitly linking environmental issues with political incentives to regional governments. This study also reports that corporate environmental performance impairs firm value for state-owned firms but has no impact on firm value for non-state-owned firms, suggesting that investors negatively respond to environmental investments made by state-owned firms as a result of government engagement/political pressure. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment. Keywords: government engagement; political pressure; environmental policy; policy implementation; environmental performance Introduction T HIS STUDY EMPIRICALLY EXAMINES HOW GOVERNMENT ENGAGEMENT, REPRESENTED BY OWNERSHIP STRUCTURE,impacts the environmental performance, as measured by environmental capital expenditure, of firms in the eight most polluting industries in China over a 10-year period. We particularly examine the implementation of environmental policies and how policy enactment affects the corporate environmental behavior of firms. In addition, this study investigates whether environmental investments made by listed firms are recognized by market investors. Business Strategy and the Environment Bus. Strat. Env. 24, 1-19 (2015) Published online 22 August 2013 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002DOI: 10. /bse.1802 Our research is motivated by a stream of previous studies focusing on stakeholder engagement and public policies relating to environmental issues (e.g. Delmas and Toffel, 2004;González-Benito and González-Benito, 2010;Gouldson and Sullivan, 2007) and exploring the effects of pressure from various stakeholders regarding environmental protection and the implementation of public policies. While business constantly interacts with various stakeholders and societal actors such as governments, civil society and organizations (Mathis, 2007), and all stakeholders jointly influence the environmental decisions and actions of firms, the government is considered the most important stakeholder in that public policies set by governments impose a tremendous amount of pressure on firms (Steurer, 2010;Delmas and Toffel, 2004;Delmas, 2002). However, these studies typically look at the developed world in which there exists a well-organized legal and political mechanism, while little, if any, attention has been paid to emerging market...

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