The impact of environmental policy on firm performance: microeconomic evidence from China

Lu, Dingkun (2024) The impact of environmental policy on firm performance: microeconomic evidence from China. PhD thesis, University of Glasgow.

Abstract

The swift degradation of environmental quality and depletion of natural resources in China have raised significant concerns, leading to a demand for more stringent and comprehensive environmental management practices. This thesis focuses on the effect of environmental regulation on firm performance in China. I examine the Two Control Zone (TCZ) policy, which aims to address one of the most serious air pollutants in China, sulphur dioxide emissions. It divides counties into two groups. Only firms located in the counties listed by the policy are subject to regulation. Firmlevel databases containing emissions and accounting information are utilized for the period from 1998 to 2007. In Chapter 4, I investigate the impact of the TCZ policy on Chinese firms’ emissions and performance. Using the difference-in-difference approach, I find the trade-off between firm productivity and firm environmental performance under environmental regulation. Regulated firms apply two different methods to reduce their emissions: increasing pollution abatement devices and improving production technology. The first approach reduces firms’ productivity and the second stimulates it. In Chapter 5, I work on overcoming the trade-off between firm productivity increases and increasing emissions. I propose a novel measure for environmental efficiency and environmental misallocation, which applies a production function with emissions as a by-product of the production process to compute firms’ marginal emissions of energy. This chapter investigates how environmental regulation policy affects firms’ environmental efficiency and its role in shaping environmental misallocation across firms. The result shows that the TCZ policy leads to a drop in firms’ marginal emission of energy and an increase in its dispersion. In Chapter 6, I developed the most suitable approach, the Difference-in-Difference framework decomposition, to uncover the sources of emission declines from different components, which mitigates the problem of panel regression analysis. This chapter investigates the difference between the emission declines of the in-TCZ zone and the out-TCZ zone. The result shows that environmental policy has reduced firms’ weighted average emission compared with the firms unregulated, which can be broken down into the contributions of surviving, entering, and exiting firms. One limitation of the study is that I did not compare the environmental efficiency of Chinese firms with a frontier level, such as that of American firms.

• Item Type: Thesis (PhD)
• Qualification Level: Doctoral
• Subjects: H Social Sciences > HD Industries. Land use. Labor; H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
• Colleges/Schools: College of Social Sciences > Adam Smith Business School
• Supervisor's Name: Ding, Professor Sai, Yoshimoto, Dr. Hisayuki and Maclennan, Professor Duncan
• Date of Award: 2024
• Depositing User: Theses Team
• Unique ID: glathesis:2024-84259
• Copyright: Copyright of this thesis is held by the author.
• Date Deposited: 24 Apr 2024 14:59
• Last Modified: 24 Apr 2024 15:03
• Thesis DOI: 10.5525/gla.thesis.84259
• URI: https://theses.gla.ac.uk/id/eprint/84259