The ecological accountability reform and corporate investment efficiency: Evidence from a policy shock

Abstract

The ecological accountability reform is an emerging environmental regulatory tool used by transition economies to correct failures and deviations in the traditional central-local environmental governance mode. This paper applies the propensity score matching with difference-in-differences method to test the impact of the central environmental inspection, an ecological accountability mechanism, on the investment efficiency of enterprises. The results reveal that the central environmental inspection can improve the corporate investment efficiency by resisting the urge to over-investment. Furthermore, this policy can improve corporate investment efficiency by dual functions of the incentive effect of increasing R&D investment and the pushback effect of financial risk. After a series of robustness checks, the results remained reliable. Heterogeneity tests show that the effect gradually appears in regions that implemented policy lately or with re-inspection, indicating the necessity of establishing a long-term mechanism. What's more, the positive effect of the central environmental inspection on corporate investment efficiency will be more significant in SOEs, large companies, and companies in provinces with weak environmental regulations. To achieve carbon peaking and carbon neutrality goals, this paper provides implications for improving collaborative governance system of local environmental protection and strengthening the linkage of environmental regulation and enterprise investment.