Can anti-corruption help realize the “strong” Porter Hypothesis in China? Evidence from Chinese manufacturing enterprises

• Published in: Journal of Asian economics 2022-06, Vol.80, p.101473, Article 101473
• Main Authors: He, Wenjian, Chen, Xiaoyang, Liu, Zhiyong John
• Format: Article
• Language: English
• Subjects: Anti-corruption; Enterprise financial performance; Environmental regulations; The “strong” Porter Hypothesis
• ISSN: 1049-0078; 1873-7927
• DOI: 10.1016/j.asieco.2022.101473

The existing research on the “strong” Porter Hypothesis has largely ignored the impact of the institutional environment. In this paper, we take the high-intensity anti-corruption campaign in China as a policy shock to explore the internal mechanism of anti-corruption as a moderator for the relationship between environmental regulations and enterprise financial performance, and investigate whether anti-corruption can help realize the “strong” Porter Hypothesis. Through empirical tests, we find that the environmental regulations implemented in China have significantly undermined the financial performance of manufacturing enterprises. However, by creating a fairer institutional environment, anti-corruption not only significantly improves the manufacturing enterprises’ financial performance, but also weakens the negative impact of environmental regulations. The above results still hold true upon a battery of robustness tests. Moreover, we further analyze the heterogeneous moderating effect of anti-corruption on different types of enterprises and find significant differences on the enterprises with different ownership natures or pollution levels. Therefore, we believe that the anti-corruption campaign is complimentary to the environmental policies in inhibiting rent-seeking activities and providing innovation incentives for enterprises facing environmental regulation, so as to realize the “strong” Porter Hypothesis and improve enterprise financial performance. •The “strong” Porter Hypothesis per se can hardly be supported in Chinese manufacturing enterprises currently.•Anti-corruption can facilitate efficient allocation of enterprise resources, improving enterprise financial performance.•By solving the “paper-law” problem in China, anti-corruption weakens the negative impact of environmental regulations.•Anti-corruption shows heterogeneous moderating effect on enterprises with different ownership natures or pollution levels.