Abstract
Using a unique dataset of publicly listed companies in China, we show that the collaborative environmental governance between the central and local governments reduces the effect of local enforcement of regulations on firms’ environmentally responsible behaviors. This is consistent with the fact that the Chinese central government uses a command-and-control type of regulations under which the local governments bear the full cost of enforcing the regulations. The local governments do not have the incentive to override the central supervision and therefore, simply lower their standard of enforcement and comply with the central supervision. However, this finding mainly reflects the results from the state-owned enterprises. For the private firms, the central supervision instead strengthens the impact of local enforcement. The heterogeneous results can be explained by the fact that the private firms are more financially constrained compared to the state-owned enterprises. They have the incentives to avoid the costs of complying with the regulations by paying a fine or colluding with the local regulators. The central supervision reduces the asymmetric information and increases the non-compliant firms’ chance to get caught for violations or collusion. This explains why once the central government intervenes, those private firms have to improve their environmentally responsible behaviors.
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Data availability
Data and codes are available from the authors upon requests.
Notes
Huang (2003) provides the tax rates that the local governments impose on firms for city maintenance, natural resource conservation, and education, etc. in 1995. The SOEs of the manufacturing sector pay 0.86% of the sales while the private firms pay 1.03%. The SOEs of the electronic sector pay 0.33% while the private firms pay 1.29%. This is regarded as a subsidy that the local governments implicitly offer to the SOEs after bargaining.
Using data on public and private entities’ compliance with the U.S. Clean Air Act and Safe Drinking Water Act, Konisky and Teodoro (2016) find that, compared with private firms, government agencies are less likely to be penalized for violations.
The pollution-intensive industries defined by the Ministry of Ecology and Environment of China include thermal power generation, iron and steel, cement, electrolytic aluminium, coal, mineral exploitation, metallurgy, chemical materials, petrochemical materials, building materials, paper and pulp, brewery, pharmaceutical products, fermentation, textiles, and leather products.
This reverse causality is not a concern for the local enforcement because the measure of local enforcement is constructed by the local regulator’s monitoring and inspection activities. It is the local regulator’s legal obligations to take these activities as their routine work. It is not influenced by how individual firms behave.
According to the NSMF program, water pollution includes the pollutant of Chemical Oxygen Demand (COD) and Ammonia Nitrogen (NH3-N), and air pollution includes Sulfur Dioxide (SO2) and Nitrogen Oxides (NOX).
Blundell and Dias (2000) propose both parametric and non-parametric matching estimators. The non-parametric approach estimates the average treatment effect on the treated (ATT), i.e., to compare the means of the ERBs between the treated (NSMF participants) and the controls (non-participants). However, the goal of this paper is to test the causality of the collaborative environmental governance on the firms’ ERB. Therefore, we use the parametric approach instead of analyzing the ATT.
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Acknowledgements
Wu acknowledges supports from the National Natural Science Foundation of China under Grant #71803193 and the Ministry of Education of China under Grant #17YJC790166.
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Professor Wu initiated the ideas and conducted the empirical work. Professor Hueng wrote the main manuscript text. Both authors reviewed the manuscript.
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Wu, S., Hueng, C.J. Central-local collaborative environmental governance and firm-level environmental performance: the role of firm ownership. Econ Gov 25, 57–80 (2024). https://doi.org/10.1007/s10101-023-00305-5
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DOI: https://doi.org/10.1007/s10101-023-00305-5
Keywords
- Collaborative environmental governance
- Environmentally responsible behaviors
- Central government interventions
- Firm ownership