Making a knife dual purpose: Revisiting the impact of China’s new environmental protection law on firm-level total factor productivity

Making a knife dual purpose: Revisiting the impact of China’s new environmental protection law on firm-level total factor productivity

A previous study used the implementation of China’s new Environmental Protection Law (EPL) as a quasi-natural experiment to investigate the impact of the new EPL on firm-level total factor productivity (TFP). Those results showed that the implementation of the new EPL significantly hindered the TFP of heavily polluting companies and this negative effect persisted for two years. By extending the research window and using a more precise method for measuring TFP, we find that the negative impact of the new EPL on the TFP of heavily polluting companies has diminished over time, and in the long run, the law is actually contributing to an improvement in TFP. Further tests show that this long-term positive impact is due to improvements in both firm-level technological innovation and resource allocation efficiency. Moreover, the new EPL is playing a more active role in state-owned enterprises, while market competition and regional pressure for economic development are weakening the effectiveness of the new law. Findings from this study provide a reference, especially for emerging and transition economies that are struggling between economic growth and environmental protection.

Wenjuan Ruan holds a PhD in Finance from the University of Wollongong (Australia). She has established a research track record through publications in areas of corporate finance, corporate governance, sustainable finance, and FinTech. She has secured several research grants from the UK, Australia, and China. Wenjuan has taught a wide range of subjects at the UG and PG level, including Corporate Finance, International Finance, Security Investment Analysis and Digital Entrepreneurship.