Local governments’ green development attention, corporate active environmental investments, and the economic consequences: evidence from China

Few studies focus on the impact that non-administrative government actions have on corporate environmental behavior. Using a sample of A-share listed companies in China, this study develop a Local Government Green Development Attention Index to assess how local governments’ green development attention (GDA) influences corporate environmental investment decisions. This study find that such attention significantly improves corporate active environmental investments (CAEI), which lead to other positive economic consequences. In particular, corporations that actively respond to government green development initiatives receive further environmental subsidies and reduce their financing constraints. Additional study indicates that non-state-owned enterprises are more active in environmental investment than state-owned enterprises in response to local governments’ GDA, as are firms in heavily polluting industries. In addition, when primary local officials change, the positive impact of local governments’ GDA on environmental investment becomes more pronounced. The results show that non-mandatory government actions can significantly influence corporate decision making. Evidence is provided for micro-level corporate engagement in local environmental governance. JEL Classification: Q56, Q58, M14