Impact of Environmental Protection Regulations on Corporate Performance From Porter Hypothesis Perspective: A Study Based on Publicly Listed Manufacturing Firms Data

Abstract

“Porter Hypothesis” believes that environmental protection regulations contribute to cleaner production and green technology innovation which benefit to enhance manufacturing firm performance . We take China’s new “Environmental Protection Regulations (2015), as a quasi-natural experiment, using A-share listed companies in Shenzhen and Shanghai in 2012–2017 as a research sample. Using the propensity score matching and double difference (PSM-DID) method, we empirically test the impact of environmental regulations on the financial performance of these companies. The results show that the new Environmental Protection Law has significantly improved corporate profits of large enterprises large firms. Different from the innovation mechanism emphasized in the literature based on the Porter hypothesis, we find that “Compliance cost heterogeneity” caused by the scale difference of firms better explains the impact of environmental regulations on the profit margin of listed manufacturing firms. Overall, this study contributes novel insights about the economic consequences of environmental regulation and establishes an initial foundation for investigating environmental regulation from the perspective of compliance cost heterogeneity.

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