Does environmental pollution liability insurance promote environmental performance? Firm-level evidence from quasi-natural experiment in China

Taking China's environmental pollution liability insurance (EPLI) in 2008 as a quasi-natural experiment and using extensive panel data from the Chinese Industrial Enterprise Pollution Database (1998-2014) and Chinese Industrial Enterprise Database (1998-2013), this paper identifies the implementation effects of EPLI on emission reduction by employing the method of time-varying difference-in-differences. Results demonstrate that marketbased environmental regulation has significantly promoted all types of industrial firms' emission reduction, except collective enterprises. EPLI, as a market-based environmental regulation, owns more flexible mechanisms to stimulate firms to reduce emissions, including reducing the usage of coal and oil and increasing the quantity of emission treatment facilities and investment. This paper provides empirical evidence to support the usage of EPLI in improving environmental performance, which not only comprehensively evaluates China's market-based tool but also provides treasures experience for the environmental management of developing countries on a firm level.