The real effect of legal institutions: Environmental courts and firm environmental protection expenditure

• Published in: Journal of environmental economics and management Vol. 98; p. 102254
• Main Authors: Zhang, Qi, Yu, Zhi, Kong, Dongmin
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.11.2019
• Subjects: China; Environment courts; Environmental protection expenditure; Local protectionism; Quasi-natural experiment; Environment courts; Environmental protection expenditure; G31; Q58; China; Quasi-natural experiment; K42; Local protectionism; Q53
• ISSN: 0095-0696; 1096-0449
• DOI: 10.1016/j.jeem.2019.102254

This paper evaluates the real effects of environmental justice reform on environmental governance at the firm level. Using the establishment of environmental courts in China as a quasi-natural experiment, our difference-in-differences estimation shows that: (1) environmental courts significantly enhance environmental investment by firms, and this relationship is robust to different specifications and alternative measures; (2) three possible channels are the improved levels of justice and enforcement of environmental protection, and the mitigation of local government intervention; (3) our findings are particularly pronounced in subsamples with severe local protectionism, state-owned enterprises (SOEs), and non-SOEs with political connections; (4) at the city-level, environmental courts significantly increase air quality and promote cities to cross the inflection point of the environmental Kuznets curve earlier. Overall, this paper reveals the micro-mechanisms behind the real effects of environmental justice on firm environmental investment, thus providing timely implications for regulators concerned with environmental protection.