Regulatory enforcement and corporate ESG performance: evidence from the random inspection system in China
Numerous of studies have associated government regulatory systems with corporate ESG performance, but insufficient research has considered the significance of regulatory enforcement. The random inspection system implemented by the Ministry of Ecology and Environment represents a significant innovati...
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| Main Authors: | , , , , |
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| Format: | Article |
| Language: | English |
| Published: |
IOP Publishing
2025-01-01
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| Series: | Environmental Research Communications |
| Subjects: | |
| Online Access: | https://doi.org/10.1088/2515-7620/addbae |
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| Summary: | Numerous of studies have associated government regulatory systems with corporate ESG performance, but insufficient research has considered the significance of regulatory enforcement. The random inspection system implemented by the Ministry of Ecology and Environment represents a significant innovation in regulating the government’s environment enforcement practices in China. Taking A-share listed non-financial firms from 2009 to 2022 as a sample, we investigate the impact of this system on corporate ESG performance using a staggered difference-in-differences model. The main relevant findings are as follows: First, this system significantly improves the ESG performance of enterprises that have been randomly inspected by local environmental protection departments, with notable improvements observed across the environmental (E), social (S), and governance (G) subdimensions; Second, this system drives enterprises to increase their ESG performance through the mediating mechanisms of attention allocation and green response; Third, this system has a stronger positive effect on corporate ESG performance when enterprises are heavily polluting, non-state-owned, located in favorable business environments and situated in regions with loose fiscal statuses; Fourth, by improving corporate ESG performance, this system significantly enhances main business performance, increases market value and enhances green productivity; Fifth, the results illustrate the significant industry- and city-level spillover effects from improved ESG performance driven by this system, while provincial spillover effects are not evident. This study contributes to the literature by providing new insights into the determinants of corporate ESG performance from the perspective of regulatory enforcement and revealing the effectiveness of the random inspection system in promoting sustainable development. Following the aforementioned findings, we recommend that government departments actively implement this system, optimize business environments, adopt measures to improve financial statuses and facilitate the sharing of ‘one list and two databases’ within the province to further boost corporate ESG performance. |
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| ISSN: | 2515-7620 |