Environmental Regulations And Corporate Behaviors

To abandon the negative external economic effects,the Chinese government has continuously deepened reforms in the field of ecological and environmental protection.In the face of the huge investment and risk brought by the transformation,how does this transition risk affect corporate behaviors?This paper examines how the corporate behavior changes in the face of environmental regulations.Firstly,I find that environmental regulations lead the corporate strategy to be moderate.Under regulatory pressure,while firms with worse CSR performance and firms which have more environmental commitments,adopt more moderate corporate strategy.Further,the increase of external supervision,financing constraints and operation risk are channel mechanisms.Secondly,command-control regulations inhibit firms’ green innovation activities.Moreover,only in the examined sub-sample with high agency costs or non-SOEs is this negative relation pronounced in the main regression,and these firms’ green innovation choices are more strategic.I also find that the market-incentive regulations increase firms’ green innovation.Thirdly,this study finds that environmental regulations motivate firms to increase cash holdings.Further analyses reveal that firms increase cash holdings due to having less debt financing and decreased sales.Under regulatory pressure,firms with higher risk and regulatory pressure hold more cash than firms otherwise.The increased cash holdings decrease firm value.This paper has following contributions.First,previous literature focused on the impact of economic regulation,but paid less attention to the economic consequences of social regulation.This paper enriches the previous research on regulation and corporate financial behavior.Second,our study investigates the causes of such consequences.Third,I first employ the nature reserves and the area of wetland the as the instrumental variables.Fourth,the finding provides implications to the regulators and policy makers.