Pollutant Discharge Permit Regulation and Firms' Environmental Investment Responses: Firm-level Evidence from China

Corporate environmental investment plays a critical role in enabling firms to discharge their environmental responsibilities. Using a panel dataset of Chinese A-share listed firms from 2015 to 2023, this study examines how pollutant discharge permit regulation affects firms' environmental investment responses. The empirical results indicate that pollutant discharge permit regulation significantly increases firms' environmental investment. Mechanism results suggest that pollutant discharge permit regulation affects firms' environmental investment primarily by enhancing the transparency of environmental information and intensifying compliance pressure, thereby strengthening firms' incentives to invest in environmental protection. Further investigations indicate that the positive investment response is more pronounced among firms with higher intelligent investment, stronger managerial awareness of information technology, greater participation by green-oriented investors, and those operating in regions covered by low-carbon city pilot policies. Evidence on economic consequences suggests that pollutant discharge permit regulation can generate performance gains for firms by encouraging greater investment in environmental protection. The findings of this study not only theoretically extend the understanding of the determinants of corporate environmental investment, but also provide useful policy implications for regulatory authorities to promote enterprises' green transformation through pollutant discharge permit regulation.