Journal
ECONOMIC MODELLING
Volume 102, Issue -, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.econmod.2021.105585
Keywords
Environmental regulation; Newly revised Environmental Protection Law; Porter hypothesis; Profitability; Heterogeneity of compliance costs
Categories
Funding
- National Natural Science Foundation of China [72003049]
- Humanities and Social Science Fund of Ministry of Education of China [20YJC790191]
- National College Students' Innovation and Entrepreneurship Training Program [202011846007]
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The study found that the implementation of the new EPL significantly improved the profitability of heavily polluting companies, but did not effectively stimulate enterprise innovation, thus not supporting the weak PH.
The existing test of the strong version of the Porter hypothesis (PH) presents mixed results. Relevant literature explains this phenomenon from the perspective of the weak version of the PH. It is unclear whether other explanations exist. China's listed company data from 2010 to 2018 were used, and the Propensity Score MatchingDifference-in-Differences method was used to investigate the influence of a newly revised Environmental Protection Law (new EPL) on companies' profitability and the underlying mechanism. The results shows that the enactment of the new EPL has significantly improved the profitability of heavily polluting companies, which is realized through the consolidation of enterprises' cost management and elimination of small firms with high compliance costs. However, the new EPL has not effectively stimulated the innovation of enterprises, which shows that the weak PH does not hold. This finding helps develop a new method for understanding the mechanism behind the strong PH.
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