The Deterrence Effect of a Penalty for Environmental Violation

Abstract

The response to the penalty for an environmental violation on the firm level is a matter of reactive corporate environmental practices, about which the existence of a penalty is critical for environmental public policy. We propose that a penalty acts as a deterrence signal to enhance the perceived threat of legal punishment and the peer effect serves as the path through which peer firms learn from target firms. Based on the peer effect among firms and the deterrence effect in criminal economics, we investigated whether and how the peer firm responds to the penalty for environmental violation of target firms in the same industrial sector. Using samples of Chinese listed firms from 2008 to 2015, this paper finds that the penalty for the target firms can increase the peer firms' environmental investment, and compared to the sample with low-level environmental regulation, the increase in the sample with high-level environmental regulation is more significant. These findings suggest that a penalty for target firms has a deterrence effect on peer firms and the environmental regulation strengthens the above deterrence effect. This is expected to help both theorists and practitioners achieve a better understanding of the implementation of a penalty for an environmental violation.

Commitment to Human Resource Management of the Top Management Team for Green Creativity

“…Meanwhile, the implementation of enterprise environmental regulations is also supervised by industry associations in China. Wang et al [45] point out that those enterprises violating environmental protection laws or regulations would receive penalties, such as economic fines and bad reputations. Such regulations thus serve as external subjective pressure for enterprises, especially for TMT, urging them to consider the environment when making decisions, and paying more attention to applying GHRM and green creativity.…”

Promoting Green Product Development Performance via Leader Green Transformationality and Employee Green Self-Efficacy: The Moderating Role of Environmental Regulation

“…The closer the cooperation between the organization and the government, the more conducive to obtaining information resources related to environmental regulation and gaining first-mover advantage [41,58]. In order to accomplish the commitment to environmental goals and achieve the balance between environment and performance [60], individuals with higher green-efficacy are likely to use the heterogeneous resources at hand to develop and transform green products to attain higher performance, which is conducive to their own enterprises to formulate green standards, establish potential barriers to entry, and gain a foothold for environmental-oriented competition [37,47].…”

Opening a Path towards Sustainable Corporate Behaviour: Public Participation in Criminal Environmental Proceedings

“…Furthermore, it can be expected that a similar development would likely have a positive effect on the behaviour of legal persons who have so far been insufficiently compelled to respect environmental standards. The deterrence effect among peers would actually act as a driver for increased compliance among fellow businesses in this case [1,8].…”

“…Despite the calls for increased corporate accountability for environmental offences which translated into a large number of environmental laws being adopted in the last decade, the practice has illustrated that where such environmental legal frameworks exist, they remain essentially on paper as they rarely lead to regular, complete and efficient enforcement [1][2][3], let alone criminal investigation and the imposition of penalties [4,5]. Indeed, while environmental law has been evolving dynamically and so have human rights, weak enforcement seems to be a recurring cause of environmental degradation which further aggravates environmental threats [1,6,7], underlining how difficult it is to achieve a positive change on the ground without the threat of an actual legal punishment, which in turn creates pressure on businesses to comply with environmental standards as a result of the deterrence effect among peers [8,9].…”