The impact of China’s new Environmental Protection Law on corporate environmental investments

Abstract

As an important lever for China’s green development strategy, whether the new Environmental Protection Law can effectively form investment incentives for enterprises has attracted much attention and is also an important topic that theoretical research urgently needs to explore. This paper utilizes corporate data from non-financial listed companies in Shanghai and Shenzhen A-shares from 2007 to 2018. By adopting a double-difference model, it explores the incentive role and internal mechanism of the new Environmental Protection Law (EPL), implemented in 2015, as an environmental regulation on the environmental protection investment of enterprises, taking the new EPL’s enactment as a quasi-natural experiment. The study revealed a noteworthy and positive impact on motivation, which remained consistent even after various robustness tests. Additionally, the impact of incentives varied depending on the level of competition within the industry, financial constraints, and ownership type of the enterprises. Investigating the mechanism, it has been discovered that the incentive effect advances the environmental investment of firms through diminishing agency costs, enriching the quality of environmental information disclosure, and facilitating government subsidies to enterprises. This study not only verifies, from the factual empirical level, that environmental regulation policies can promote corporate environmental investment but also provides important evidence to support to a certain extent that the implementation of the new EPL can promote enterprises’ environmental governance behaviors. This article reveals the microeconomic effects of the new Environmental Protection Law from the perspective of corporate behavior strategies, and the research conclusions have important reference significance for the construction of national legal systems and the deepening of green development strategies.