Imperative Environmental Regulation And Dynamic Adjustment Of Capital Structure

The report of the 20 th National Congress proposed to improve the green policy system,support green development through fiscal,tax,financial,investment,price policies and standard systems,and improve the regulation and control of total energy consumption and intensity,and further promote the prevention and control of environmental pollution.As an important source of pollution emissions and economic bearers,enterprises also are the main objects of environmental policies,in the new stage of with the concept of green development,their operating environment is bound to be affected from multiple dimensions.It is increasingly important to consider how the external supply and internal orchestration process of corporate resources are affected by the environmental regulatory factors.The capital structure reflects the source of capital and distribution relationship of the stakeholders,which is related to the balance of the enterprise’s risk and return,its reasonable situation is an important aspect of the enterprise’s resource allocation,so it is worth studying whether and how environmental regulation affects the level of the enterprise’s capital structure whether from theory or reality.The existing literature mostly analyses the influence of the regulations on capital structure of enterprises from a static perspective,but rarely analyzes this process from the perspective of capital structure deviation and adjustment,which is a dynamic perspective.This paper analyses the impact of imperative environmental regulation on the speed of capital structure adjustment both from the perspective of financing demand and supply,and exploits the promulgation of the new environmental protection law to test the effect based on the double difference model and partial adjustment model,using the data of listed companies from 2010 to 2019.This paper focuses on as follows(1)whether imperative environmental regulations will affect the adjustment of corporate capital structure;(2)through which channels the impact is achieved;(3)which enterprises are more affected;(4)whether the proactive behavior of enterprises will mitigate the impact of environmental regulations on the speed of capital restructuring.The results show that:(1)The implementation of the new environmental protection law has significantly reduced the speed of capital structure adjustment of highly polluting enterprises.This effect was stronger in the short window(2012-2017)and are weakened in the long window(2010-2019).(2)There are two channels for slowing down the capital adjustment of highly polluting enterprises under the new environmental protection law: financing demand and financing supply.After the implementation of the new environmental protection law,highly polluting enterprises reduced their physical investment out of escalating of risk;Debt institutions such as banks have also reduced the scale of credit granted to highly polluting enterprises and industries.The decrease in financing demand and financing supply has inhibited the speed of capital structure adjustment of enterprises.(3)SOEs and lower-growth enterprises are more affected,which may be due to the fact that past credit support of SOEs is more easily suppressed in the face of increased environmental regulation,and low-growth enterprises are more uncertainty when exposed to the environmental risks.(4)Enterprises with great improvement in ESG scores and numbers of green patent applications are not significantly affected,indicating that enterprises that have made great efforts to improve their environmental performance after the promulgation of the new environmental protection law are less affected.Above conclusions are helpful for us to understand the interaction process of environmental regulation and firm,which has enlightenment for policy formulation and corporate response.