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<p>While environmental enforcement and market-oriented environmental regulation influence corporate over-financialization, the role of command-and-control environmental regulation (CAC) remains unexplored. Utilizing a double machine learning model, and treating China’s new environmental protection law (NEPL) enforced in 2015 as a quasi-natural experiment, we examine how CAC affects the over-financialization of heavily polluting firms. The result finds that NEPL significantly alleviates corporate over-financialization, supporting the deterrent effect. Mechanism analyses reveal that NEPL inhibits over-financialization by restraining managerial myopia and boosting green investments. Moreover, the negative effect of NEPL is more pronounced for firms with green investors, more public concern, and higher financing constraints, while firms with political connections are not dramatically affected. Notably, further analysis demonstrates broader economic benefits: NEPL effectively enhances total factor productivity by an average of 3.74% in highly over-financialized firms with severe resource misallocation. Our findings suggest that CAC carries unintended spillover effects on preventing financial risks and rationalizing resource allocation, providing new evidence for the Porter hypothesis.</p>

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Exacerbate or alleviate? The new environmental protection law and corporate over-financialization

  • 期刊论文

  • 发表日期：

    2025年7月25日

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  • Jiayu Xie,
  • Shanyong Wang,
  • Haidong Li

摘要

While environmental enforcement and market-oriented environmental regulation influence corporate over-financialization, the role of command-and-control environmental regulation (CAC) remains unexplored. Utilizing a double machine learning model, and treating China’s new environmental protection law (NEPL) enforced in 2015 as a quasi-natural experiment, we examine how CAC affects the over-financialization of heavily polluting firms. The result finds that NEPL significantly alleviates corporate over-financialization, supporting the deterrent effect. Mechanism analyses reveal that NEPL inhibits over-financialization by restraining managerial myopia and boosting green investments. Moreover, the negative effect of NEPL is more pronounced for firms with green investors, more public concern, and higher financing constraints, while firms with political connections are not dramatically affected. Notably, further analysis demonstrates broader economic benefits: NEPL effectively enhances total factor productivity by an average of 3.74% in highly over-financialized firms with severe resource misallocation. Our findings suggest that CAC carries unintended spillover effects on preventing financial risks and rationalizing resource allocation, providing new evidence for the Porter hypothesis.