The impact of government intervention on corporate environmental performance: Evidence from China's national civilized city award

• Published in: Finance research letters 2021-03, Vol.39, p.101624, Article 101624
• Main Authors: Zhang, Chi, Liu, Qiang, Ge, Guoqing, Hao, Ying, Hao, Han
• Format: Article
• Language: English
• Subjects: Civilized city; CSR; Environmental protection; Financial performance; Government intervention
• ISSN: 1544-6123; 1544-6131
• DOI: 10.1016/j.frl.2020.101624

•We exploit China's National Civilized City Award campaign as a quasi-natural experiment.•We explore how firms increased environmental performance in response to the government intervention.•We show that firms located in national civilized cities have higher environmental performance scores.•Our results show that governments have opportunism in building civilized city.•We confirm that local governors who have achieved the title of national civilized city are more likely to be promoted. The national civilized city is the most influential city brand in China. Employing Propensity Scores Matching (PSM) design and difference-in-difference (DID) approach based on the quasi-natural experiment of participating in national civilized city award (NCCA) campaign, our paper examines the effect of government intervention on the corporate environmental performance (CEP, hereafter). We find that the environmental performance of firms located in civilized cities is higher than that of firms in non-civilized city during the event period. Then, the effect is more pronounced for state-owned enterprises, heavily polluted firms and firms in regions with officials having stronger promotion incentives. We also confirm that local officials who have achieved the title of NCCA are more likely to be promoted. Finally, we find that NCCA campaign would destroy firms’ financial performance in short-run but the effects reverse in future. Our results indicate that CEP is in the interest of local governments, providing a new perspective for understanding the determinants of corporate social responsibility in emerging markets.