The Impact of Environmental Regulatory Instruments on Firm Investment Efficiency: Evidence from Chinese Listed Heavy Polluters

Environmental regulation policies demonstrate a tendency toward diversification, and different environmental regulation tools have different effects on the investment efficiency of heavy polluters. Little is known about the effect of various forms of environmental restrictions on the efficacy of company investment. This paper uses a fixed-effects model and a threshold-effects model to investigate the differential effects and synergies of environmental regulatory instruments on firms' investment efficiency using a sample of Chinese heavy polluters listed on A-shares in Shenzhen and Shanghai between 2011 and 2019. According to the study's findings, command-and-control environmental regulations have a considerable detrimental impact on the investment efficiency of state-owned heavy polluters. Market-incentivized environmental regulations significantly increase the efficiency of investment by heavy polluters, and the effect is successful in the long run. Further analysis reveals that command-and-control environmental regulations and market-incentive environmental regulations influence each other; there is a threshold effect for one environmental regulation when another environmental regulation influences the investment efficiency of heavy polluters. The two types of environmental regulations also play a synergistic role within a reasonable intensity to improve the investment efficiency of heavily polluting enterprises. The study's findings provide empirical evidence for firms to improve their ability to respond to external environmental policy changes in pursuit of high- quality development, as well as guidance for governments to optimize environmental regulation policies and better coordinate the use of environmental regulation tools to achieve better environmental and economic benefits.