Does environmental regulation promote enterprise environmental protection investments? A quasi-natural experiment from river chief system in the Yangtze river delta of China

Abstract

The investment decisions of enterprises are affected by environmental regulations designed to protect the environment, so environmental regulations may change companies' investment behavior in environmental protection. This study focuses on the River Chief System (RCS)1, an innovative environmental regulation related to river governance which officially launched in China in 2014. Based on data collected from heavy-polluting companies in the Yangtze River Delta, we use the difference-in-differences model (DID Model)2 and focus on RCS's impacts on micro-environmental protection investments. Our findings reveal that the RCS is conducive to expanding the scale of enterprises' environmental protection investments. Industrial structural upgrades appear to have a masking effect wherein the one-sided pursuit of industrial structural upgrades may slow economic growth and cause enterprises to reduce the scale of environmental investments. We recommend that the allocation of environmental investment should be based on the characteristics of local markets and public participation, and maintain a balance between secondary and tertiary industries, government and business incentives.

Keywords

• River chief system
• Enterprise environmental protection investment
• Industrial structure
• Water pollution
• Environmental regulation
• Difference-in-differences model