Research On The Impact Of The Process Of Legalization On Corporate Environmental Investment

Since the introduction of the reform and opening-up policy in 1978,China has made remarkable progress in its economic development.However,with the industrialization and mechanization of China,the country has also encountered severe environmental challenges,such as the persistent problem of haze and water contamination,which negatively impact both business activities and public welfare.Environmental management requires the participation of multiple stakeholders,but it is noteworthy that environmental pollution is an inherent byproduct of enterprises’ production processes.To comprehensively address the issue of environmental pollution,it is essential to take measures at the root source.Thus,investigating the factors that impact enterprise environmental governance has a crucial significance in practice.Based on the literature review,the determinants of environmental investments by firms can be classified into two levels: macro and micro.At the macro level,the factors influencing such investments include the stringency of environmental regulation,gross national product(GNP),and media scrutiny,while at the micro level,the efficiency of corporate operations and management characteristics are considered.The level of legal formalization of a region has the potential to improve the local business environment,promote media supervision,and substantially affect the production efficiency and management characteristics of firms.Therefore,this study aims to explore the association between the legal formalization process and firms’ environmental investments,as well as to examine the impact of formal institutions on firms’ financial decision-making behaviors,ultimately providing effective recommendations for the exploration of corporate governance in China.This study measures the impact of the legal formalization process on a corporation’s environmental investment,using a corporation’s environmental capital expenditure as the measurement index of their environmental investment and the legal formalization index calculated by scholar Fangang to evaluate legal formalization progress in a region.The following steps are taken in the present research: First,we review literature on environmental investment and explicate the significance of environmental investment,factors affecting enterprises’ environmental governance,and relevant literature on the legal formalization process,thereby exploring their relationship.Second,we introduce relevant literature on externalities theory,Pigouvian taxation and Coase theorem,and regulatory economics to put forward hypotheses based on theoretical and empirical evidence.Third,we conduct empirical analysis on the data from Chinese A-share listed companies during the period of 2010-2019.Our results suggest that corporate social responsibility plays an intermediary role between environmental investment and corporate operational efficiency,and we analyze the impact of legal formalization on environmental investment for corporations with different management characteristics.Fourth,to ensure the stability of empirical results,we carry out robustness tests by replacing the explained variable and adding external control variables of companies.Finally,we summarize the main conclusions and provide feasible recommendations based on the research findings,as well as giving insights for future research.The present study reveals that: firstly,the legal formalization process in a region has a positive effect on corporations’ environmental investment.Specifically,an increase in the level of legal formalization can motivate corporations to fulfill their social responsibilities,making them subject to media scrutiny and thereby encouraging them to actively invest in environmental governance to maintain their business image.Additionally,an improvement in legal formalization can enhance corporate production efficiency,leading to increased corporate profitability,which can result in greater investment in environmental governance.Secondly,the effect of the legal formalization process on corporate environmental investment differs across corporations.For corporations with low levels of concentrated stock ownership and having older and more highly educated management,the impact of the legal formalization process is more apparent in promoting environmental investment.Based on these findings,three recommendations are proposed.Firstly,the government should further improve laws and regulations,clearly defining property rights and responsibilities for environmental pollution.In line with the "Pigouvian tax" approach,the government should develop a suitable "environmental tax" that increases the cost of violating environmental regulations,motivating corporations to actively engage in environmental governance through government and media supervision.Secondly,government departments should regularly train and interview corporate managers to raise their awareness of environmental investment,actively encouraging them to participate in environmental governance.Finally,heavily polluting industries,such as the manufacturing and mining sectors,should establish specialized environmental investment research departments,studying the relationship between the costs of environmental governance and corporate performance.Incorporating key factors such as corporate profitability and pollution control costs,corporations can formulate tailored environmental investment policies,actively seeking corporate reform and enhancing business efficiency.