How Does Environmental Governance of Chinese Local Governments Shape Managerial Participation in Green Initiatives?

This study investigates the impact of Chinese local governments' environmental governance on managerial engagement in green initiatives. We hypothesize that local governments' commitment to environmental protection positively affects firms' adoption of environmental performance indicators in managerial compensation, which in turn drives eco-friendly behavior. Utilizing data from Chinese A-share manufacturing companies from 2008 to 2022, we find that higher government environmental investment is associated with greater incorporation of green metrics into managerial assessments, leading to reduced corporate pollutant emissions. The effect is more pronounced for state-owned enterprises and firms in less marketized regions. Our findings underscore the crucial role of local governments in shaping corporate environmental strategies by influencing internal management practices. JEL Classification: M14, M41, P37