Government Engagement, Environmental Policy, and Environmental Performance: Evidence from the Most Polluting Chinese Listed Firms

This study empirically examines the implementation of environmental policies and how government engagement impacts on a firm's environmental performance based on a sample of Chinese listed firms in the eight most polluting industries over a 10-year period. The findings of the study demonstrate that government engagement, measured as ownership structure, is positively correlated with environmental performance, measured by environmental capital expenditure, for state-owned firms, but no significant relation is found for non-state-owned firms. In addition, non-state-owned firms are more likely to perform better in terms of environmental investment after the 2006 enactment of a new policy explicitly linking environmental issues with political incentives to regional governments. This study also reports that corporate environmental performance impairs firm value for state-owned firms but has no impact on firm value for non-state-owned firms, suggesting that investors negatively respond to environmental investments made by state-owned firms as a result of government engagement/political pressure. Copyright (c) 2013 John Wiley & Sons, Ltd and ERP Environment.