The impact of environmental regulation on firm performance: Evidence from the Chinese cement industry

• Published in: Journal of environmental management 2021-12, Vol.299, p.113596, Article 113596
• Main Authors: Wang, Qinyun, Xu, Xindi, Liang, Kaipeng
• Format: Article
• Language: English
• Subjects: Cement market; China; Construction Materials; Costs and Cost Analysis; Environmental regulation; Firm performance; Government Regulation; Manufacturing Industry; Policy; Price elasticity of demand
• ISSN: 0301-4797; 1095-8630
• DOI: 10.1016/j.jenvman.2021.113596

The relationship between environmental regulation and firm performance is a central question in environmental economics. Although many empirical works study this question, economists have not reached a consensus on the nature of the relationship or the mechanism that drives it. Based on the off-peak production policy in the Chinese cement market, this paper uses the differences-in-differences model to study the impact of environmental regulation on the revenue and profit of listed companies. We find that the environmental regulation has negative impacts on firms’ revenue and profit. According to further analysis, the main reason for this firm performance decline is that the relatively large elasticity of market demand prevents enterprises from passing regulatory costs through to consumers. Although the policy has caused the cement price to increase by 8%, it has led cement consumption to decrease by 16%. •Fuzzy Differences-in-Differences model is applied to estimate the effects of the Cement Off-peak Production Policy.•The Cement Off-peak Production Policy has negative effect on firm performance of cement industry.•The large price elasticity of demand in an industry with low demand is the main cause of the policy effect.