The real effect of legal institutions: Environmental courts and firm environmental protection expenditure

By Qi Zhang, Zhihan Yu, Dongmin Kong. Journal of Environmental Economics and Management, 2019

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This paper evaluates the real effects of environmental justice reform on environmental governance at the firm level. Using the establishment of environmental courts in China as a quasi-natural experiment, our difference-in-differences estimation shows that: (1) environmental courts significantly enhance environmental investment by firms, and this relationship is robust to different specifications and alternative measures; (2) three possible channels are the improved levels of justice and enforcement of environmental protection, and the mitigation of local government intervention; (3) our findings are particularly pronounced in subsamples with severe local protectionism, state-owned enterprises (SOEs), and non-SOEs with political connections; (4) at the city-level, environmental courts significantly increase air quality and promote cities to cross the inflection point of the environmental Kuznets curve earlier. Overall, this paper reveals the micro-mechanisms behind the real effects of environmental justice on firm environmental investment, thus providing timely implications for regulators concerned with environmental protection.

Subfields: Economics and Econometrics, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/31e505c82c62b5cef4ccd25d56b71473950746aa