Levelling Up Your Green Mojo: The Benefits of Beneficent Investment

Event Date: 27 March 2024

Speaker: Xiaoyun Yu (Shanghai Advanced Institute of Finance)

Time: 2pm

Venue: CW404b

Abstract:

We study corporate investment responses to changes in local environmental regulations. Using a manually collected dataset on project investment in China and differentiating the extent of positive externalities a project may generate, we find that local firms increase their environmental spending after  their city is targeted for heightened environmental regulation. The effect is mostly driven by “beneficent investments” – environmental projects that not only benefit the firm but also directly spill over to society at large. The increased environmental spending predominantly focuses on long-term projects. Non-state-owned firms exhibit a more pronounced reaction compared to their state-owned counterparts. Targeted cities experience a significant increase in media coverage of local environmental issues. City officials are more likely to be promoted if they meet pre-set environmental targets or reduce pollution. Firms spending more on green investments pay less taxes, garner more subsidies, and secure more bank loans. Targeted cities with larger corporate
environmental investment curb emission, improve local employment, and attract high-quality firms to a greater extent. Heavily polluting firms contribute less to the city’s tax revenues and speed up their expansion to non-polluting sectors. Local firms investing more in environmental
projects – especially the beneficent ones – have larger value gains and lower tail risk, produce more green patents, and experience greater labor productivity. Our findings highlight the role of regulatory mechanisms in enabling environmental investment to be both value- and values-enhancing.

Published: 27 March 2024