Quotation Dai, Rui, Duan, Rui, Ng, Lilian. 2021. Do Environmental Regulations Do More Harm Than Good? Evidence from Competition and Innovation. China International Conference in Finance Annual Conference, Virtual, China, 06.07-09.07.


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Abstract

This study examines whether and how competition affects corporate strategic responses to stringent environmental policies. Using the nonattainment status of U.S. counties as a source of exogenous variation in environmental regulation, we find that competition fosters green innovation as firms respond to stricter regulatory policy. Additional analyses using a subsample of firms in counties whose pollutant concentrations are marginally above or below EPA standards for regional air quality and exploiting exogenous variations in product market competition further reinforce our baseline evidence. The results suggest that the cost of relocation is a critical mechanism that compels firms to innovate when responding to tightened environmental policies and heightened competitive pressure. Regulation-induced green innovation helps competitive firms better achieve product differentiation and attract more corporate customers than their less competitive peers. Finally, competitive firms' strategic responses to stringent environmental regulations result in improved market share growth, markup, profit margin, and abnormal returns.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Paper presented at an academic conference or symposium
Language English
Title Do Environmental Regulations Do More Harm Than Good? Evidence from Competition and Innovation
Event China International Conference in Finance Annual Conference
Year 2021
Date 06.07-09.07
Country China
Location Virtual
JEL G38, M14, Q52, Q53, Q55

Associations

People
Duan, Rui (Details)
External
Dai, Rui (Wharton Research Data Services, United States/USA)
Ng, Lilian (York University, Canada)
Organization
Institute for Finance, Banking and Insurance IN (Details)
Research areas (Ă–STAT Classification 'Statistik Austria')
5358 Corporate finances (Details)
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