The Impact of China's New Environmental Protection Law on Firm-Level Capital Expenditure

Abstract

This study seeks to analyze the impact of the new Environmental Protection Law (EPL) on corporate expenditures in China. Using the Chinese A-share listed firm from 2012-2019, we find that the application of the EPL had a significant adverse effect on enterprises’ expenditures. Private enterprises showed that the impact of the EPL on investment in fixed assets and other long-term assets was not significant in the first phase of the law’s implementation, but after the implementation of the law, the enterprises significantly reduced their capital expenditures (Capex.). Whether it is a public or private labor-intensive or non-labor-intensive enterprise, the expenditure is adversely affected, both before and after the Environmental Protection Law’s enactment. The panel data analysis and multivariate regression and PSM-DID method are used to verify our results, and the robustness of the conclusion is proven.