Does environmental performance affect financial performance? Evidence from Chinese listed companies in heavily polluting industries

In recent years, environmental problems have occurred frequently in China, and the relationship between environmental performance (EP) and financial performance (FP) plays an indispensable role in exploring the internalization of corporate environmental responsibility. Using a sample of Chinese listed firms in heavily polluting industries and collected data of the Unit Sewage Fee, we empirically examine the impact of EP on FP. Our empirical results show a concave-down quadratic relationship between EP and FP. After heavily polluting industries became subject to stricter environmental disclosure regulations, however, we found that the quadratic relationship between EP and FP became weaker. Moreover, we revealed that for state-owned firms, the quadratic relationship between EP and FP is not as obvious as it is for non-state-owned firms. Our paper contributes to the growing literature on EP management. It also offers evidence of experience in perfecting the design of enterprise environmental information disclosure systems. © 2019, Springer Nature B.V.