Environmental Protection,Performance Evaluation Of Local Officials,and Enterprise Investment And Financing Research

After the reform and opening up,China has achieved tremendous economic achievements and become the world's largest economy second only to the United States.The development experience of China has attracted much attention from many countries and scholars.In North and Thomas' s view(1973),the fundamental explanation of comparative growth is differences in institutions.While Allen et al.(2005)find that China's law and institutions,including investor protection systems,corporate governance,accounting standards,and quality of government,are significantly less developed than most of the countries in the LLSV(1997,1998,1999)samples.Some scholars(Frye and Shleifer,1997;Tirole,1994)find that local governments have played a key role in the economic development of China,Showing “helping hand” instead of “grabbing hand”.To explain this phenomenon,scholars have developed two different theories.The first one is Fiscal Federalism Theory,proposed by Ying-Yi Qian,Gerard Roland and Barry Weingast et al..According to this theory,local resources and factors of production can flow freely and citizens can “vote with their feet”.Fiscal decentralization may result in benign regional competition among the local governments which effectively promotes economic growth.The second one is Promotion Tournament Theory,promoted by Li-An Zhou.This theory argues that promotion tournament,as an incentive system governing Chinese local officials,is a critical source of China's miraculous economic growth.Which one is more suitable to explain the miracle of China in economic development? This paper will clarify the controversy.Along with its high-speed economic growth,China faces the problem of dramatic environmental deterioration.Poor industrial structure has become more and more prominent.High-polluting industries have led to increasing pressure on resource consumption and environmental protection.Fog and haze in many areas in China is getting more and more serious,attracting much concern from the masses.The dilemma between ecological environment deterioration and economic development has attracted increasing attention from all over the world.Environmental deterioration and resource exhaustion are the important problems facing the current economic development of China.To solve this problem,Organization Department of the CPC Central Committee promulgates a regulation about the performance evaluation of subnational government officials,which includes environmental protection indexes in it.What is the implementation effect of the regulation? This paper will make a discussion about it.We will answer the following two questions: First,whether can the regulation affect the behaviors of the local officials,and then affect the activities of the enterprises in the jurisdiction,especially the investment and financing activities of high-polluting enterprises? Second,for Fiscal Federalism Theory and Promotion Tournament Theory,which one is more suitable to explain the miracle of China's economic growth?The main conclusions are as follows:First,Using Difference-in-Differences method(DID)and panel data of Chinese listed companies over the period of 2011-2016,this paper finds that the change of performance evaluation indexes of local officials will affect the behaviors of local officials,and then affect the operating activities of venue enterprises,especially the investment of high-polluting enterprises.Compared with low-polluting enterprises,fixed asset investment in high-polluting enterprises decreases significantly after the promulgation of the regulation.We use a rich set of tests to show that the baseline results are robust to endogeneity and reverse causality.Further research shows that the negative effect of regulation on investment is more significant in underdeveloped provinces.These results expand recent literatures about enterprise investment and performance evaluation of local officials.Then this paper tests the mechanism how the regulation affects the investment of high-polluting enterprises.Using difference-in-differences approach,we find significant decrease of debt financing in high-polluting enterprises after the promulgation of the regulation.Long-term debt financing declines more.Equity financing is not affected.Therefore,the regulation affects the investment of high-polluting enterprises through restraining its debt financing.Third,this paper tests whether the regulation affects the operating performance of high-polluting enterprises finally.Using difference-in-differences approach,we find significant decrease in the operating performance indexes in high-polluting enterprises,such as the Tobin's Q and sales growth rate et al..Accounting performance indexes,such as ROA and ROE,decrease insignificantly.Finally,this paper tests whether regional pollution degree affects the effect of the regulation.According to pollution degree,all provinces are divided into two parts,Beijing,Tianjin and Hebei province belong to the high pollution area,and others belong to the low pollution area.We find that the regulation is more effective in high pollution area than in low pollution area.The results of this paper prove that the change of performance evaluation indexes for local officials can affect the behavior of local officials,and then affect the operating activities of venue enterprises.This conclusion provides an empirical support for the Promotion Tournament Theory,and contrary to the Fiscal Federalism.According to Fiscal Federalism,Subnational government officials will not limit the investment of high-polluting enterprises,because this will decrease the local fiscal revenue.This paper not only enriches the research on the investment and financing of enterprises,but also enriches the study of macro economic policies.