The Impact Of Environmental Regulation On Corporate Profit Margins

Since the Reform and Opening up of China,with the rapid industrial development and urbanization,a large number of citizens have gathered in cities.However,with the continuous advancement of industrialization and urbanization,the problem of environmental pollution and ecological destruction has become increasingly serious.In this context,China,as a responsible big country,has proposed a series of strict environmental regulation policies.In view of this,this article focuses on the impact of environmental regulations on corporate profitability from a micro perspective.Is this effect a positive one or a negative one? What is the mechanism behind it? In addition,considering that the regional heterogeneity of environmental regulation,and Guangdong Province,as the vanguard,pioneer,and experimental area of China's reform and opening up,has always played the role of "reformation test field",this article focuses on the Guangdong area,hoping to provide a example for the implementation of environmental policies in other areas of China.This paper combines the micro-enterprise data of Guangdong Province in the 2001-2007 China Industrial Enterprise Database with the environmental regulation data of 21 prefecture-level cities in Guangdong Province,and establishes an empirical model to analyze the impact and mechanism of environmental regulation on corporate profitability.The results of the study found that,because of the “innovation compensation” effect and “following the cost” effect,the relationship between the intensity of environmental regulation and corporate profitability is not a simple linear relationship,but an inverted U-shape relationship.It means that as the intensity of environmental regulation increases,the company's profit rate increases first and then decreases.This suggests that implementing strict and appropriate environment al regulations may result in “win-win” results that increase environmental quality and corporate profitability.From the perspective of regional heterogeneity,environmental regulation in the Pearl River Delta region has significantly promoted the improvement of corporate profitability in the region,while the non-PRD region has a U-shaped relationship;From the perspective of industry heterogeneity,the impact of environmental regulations on the profitability of enterprises in different industries is still an inverted U-shape,However,the optimal environmental regulation intensity is different in theory in different industries,the lightest polluting industry has the highest optimal environmental regulation intensity,and the medium polluting industry has the lowest optimal environmental regulation intensity;From the perspective of corporate ownership heterogeneity,the linear and non-linear relationships between the intensity of environmental regulation and profitability of foreign-funded enterprises are not significant.This paper further establishes the mediation effect model to test the mechanism of environmental regulation affecting the profit rate of enterprises,and finds that environmental regulation mainly improves the profit rate of enterprises by promoting the increase of capital output rate.