Who comply better? The moderating role of firm heterogeneity on the performance of environmental regulation in China

The evaluation on the performance of environmental regulation is among the hottest topics in environmental economics and management. Although industrial enterprise is the major regulatory objects of pollution control, the firm-level pollution abatement effect of environmental regulation has been rarely examined by existing literature. This paper attempts to fill this research gap by investigating the moderating effects of firm heterogeneity on the pollution abatement effect of environmental regulation in China. We establish a theoretical framework which demonstrates that firm heterogeneity determines firms’ compliance capability and willingness through firms’ absorptive capacity, bargaining power, and environmental awareness and then influences firms’ environmental performance under regulatory pressure. Combining firm-level data of pollutant emission with province-level data of environmental regulation, we empirically examine the moderating role of firm heterogeneity on the performance of environmental regulation. We adopt a moderating effect model and estimate it with Logit regression method. It is found that environmental regulation performs better in enterprises with high capital intensity, high total factor productivity (TFP), as well as in state-owned enterprises, export enterprises, and listed companies. In particular, command-and-control regulation performs better in domestic firms than in foreign-owned firms, while the performance of market-based regulation is just the opposite. It is also found that the moderating effect of firm heterogeneity on the performance of environmental regulation varies with regions and industrial sectors, especially for the moderating role of capital intensity and TFP. These findings help to understand the enterprise environmental behavior and provide insights on targeted and differentiated environmental governance from a micro-point of view.