Does Environmental Regulation Harm Competitiveness?

Mandating goals for energy consumption reduction is a commonly used approach to combat climate change in less developed countries,but few research efforts have been made to investigate how companies respond to such mandates and what kind of economic impacts they yield.In this paper,we use a unique opportunity to observe those responses and impacts offered by a program that sets energy reduction goals for the top 1000 energy consuming enterprises in China.After addressing the possible endogeneity concern by using propensity score matching and difference-in-differences,we found that the ROA of affected enterprises decreases by one-third,which is mainly caused by the increase in production cost.We also found that the growth of affected enterprises significantly slows down,compared to other similar but unaffected enterprises.This may imply that production was shifted from affected enterprises to unaffected ones,which might lead to more energy consumption overall since the latter are generally less energy efficient.These findings contribute to our understanding of the impact of environmental regulations,both on corporate responses to energy constraints and overall corporate competitiveness.