Environmental Regulation, Political Connections, and Corporate Green Investment

Abstract

Based on the implementation of China’s new Environmental Protection Law (the new EPL), using the difference-in-differences (DID) method and the PSM method, this paper examines the impact of changes in local environmental governance motivation on corporate environmental protection investments before and after the implementation of the new EPL. The results show that, before introducing the new EPL, the scale of green investment of politically connected enterprises was significantly lower than that of other enterprises; after the introduction of the new EPL, the increase in environmental protection investment by politically connected enterprises was significantly higher than that of other enterprises. This promotion effect is more potent for formally politically connected enterprises. Given this, we suggest that governments need to achieve fair law enforcement of environmental protection and avoid the distortion of ecological protection investment by political connections during economic transitions.