The Effects Of Environmental Regulations On Firms’ Market Exit Behavior

Along with the progress of industrialization and the formation of the global supply chain system,China has long been relying on the extensive development mode to maintain its economic growth and obtain an advantage in exporting low-value products.At the same time,this has brought serious environmental pollution problems in China.It is urgent to strengthen environmental regulations.As most of the pollution in China come from industrial productions,strengthening the responsibility of industrial firms become the main focus of most environmental regulations.However,there is no clear and consistent understandings on the influences of increasingly stronger environmental regulations on these industrial firms.Therefore,environmental protection departments in different places have different attitudes towards the implementation of environmental regulations,and many of them have been acting blindly,such as making arbitrary or “one size fits all” rules,or doing nothing.On the other hand,some firms have responded to these increasingly stronger environmental regulations through illegal acts,such as secretly discharging,over discharging,and false reporting on pollutants.Therefore,taking a micro-perspective on studying the influences of environmental regulations on firms’ survival and exporting behaviors not only help the government to formulate and implement reasonable environmental regulations,but also help firms to scientifically cope with these regulations;and eventually help to improve the efficiency of these regulations.Most of the existing studies explore the impact of environmental regulations on firms’ productivity,innovation,performance,export volume,scope and quality of exports under the assumption that these firms keep survival either in the domestic market or in the export market.Few studies have examined the impact of environmental regulations on firms’ survival,that is,to investigate the impact of environmental regulations on firms’ market exit behaviors.Few studies have classified environmental regulations by their relationship with firms’ production activities or productivity,and then investigated the distinctive impact of different types of environmental regulations may have on firms.Therefore,this dissertation studies the impact of environmental regulations on two types of firms’ market exit behaviors,i.e.,domestic market exit and export market exit,both theoretically and empirically.This dissertation aims to answer three questions from a micro-perspective.First,what kind of impact that environmental regulations may have on firms’ market exit behaviors.Second,what are the paths and mechanisms through which environmental regulations affect firms’ market exit behaviors.Third,what are the differences among the influences of different types of environmental regulations on firms’ market exit behaviors.Chapter 3 and chapter 4 constitute the theoretical analysis of this dissertation.The theoretical research incorporates environmental regulations into the heterogeneity model of enterprises,and constructs an internal decision-making model considering environmental factors.At the same time,the existing and main environmental regulations in China are classified into four categories according to their relationship with firms’ production activities and productivity.The impact of these four types of environment regulations on firms’ market exit behaviors and the differences among them are also discussed.The results of theoretical analysis show that:(1)Environmental regulations that affect firms’ entry cost,decrease the critical productivity of the domestic market and the export market,and thus reduce the possibility of firms’ exit from the domestic market and the export market;(2)Environmental regulations that affect firms’ variable production cost,do not change the critical productivity of the domestic market and the export market,and thus do not affect the possibility of firms’ exit from the domestic market or the export market;(3)Environmental regulations that affect firms’ fixed production cost,decrease the critical productivity of the domestic market and the export market,and thus increase the possibility of firms’ exit from the domestic market and export market.Chapter 5 and chapter 6 constitute the empirical analysis of this dissertation.Based on findings of the theoretical analysis in the former two chapters,these two chapters examined the influences of two types of environmental regulations(i.e.,those that affect firms’ entry cost and those affect firms’ variable production cost)on firms’ market exit behaviors respectively(i.e.,domestic market exit and export market exit).In the empirical analysis,environmental regulations affecting the environmental entry cost of firms is measured by the policy of TCZ,and the environmental regulations affecting the environmental variable production cost of firms is measured by the sewage-treatment cost.Based on the panel data of Chinese industrial firms from 1998 to 2009,the panel data of cities and provinces of China from 1998 to 2018,the results of empirical analysis show that:(1)Environmental regulations that affect firms’ entry cost reduce the possibility of firms’ exit from the domestic market and the export market.(2)Environmental regulations that affect firms’ variable production cost do not affect the possibility of firms’ exit from the domestic market,but increase the possibility of firms’ exit from the export market.The contribution of this dissertation is mainly embodied in three aspects.First,this dissertation incorporates environmental regulations into the heterogeneity model of firms,constructs the internal decision-making mechanisms of the impact of environmental regulations on firms’ market exit behaviors from a micro perspective,and the empirical analysis is carried out with the data of Chinese industrial firms at the micro-level.It not only clarifies the micro-paths and mechanisms of the impact of environmental regulations on firms’ market exit behaviors in theory,but also verifies the impact of environmental regulations on Chinese industrial firms’ market exit behaviors in empirical.It provides a better explanation on the impact of environmental regulations on the main body of pollution discharge(firms)from the micro level of internal decision-making of firms.Second,this dissertation examines the impact of environmental regulations on firms in term of market exit behaviors,so as to directly reflect the impact of environmental regulations on firms when externalized environmental costs are brought into firms.Third,this dissertation classifies Chinese existing and main environmental regulations by their relationship with firms’ production activities and productivity.This method not only differentiates between “pre-control” and “post-control” environmental regulations,and between “command-control” and “economic incentive” environmental regulations,but also links the implementation of environmental regulations with firms’ production activities,and clarifies the impact of environmental regulations on firms’ market exit behaviors at each production stage.