Environmental implications of political connections and state ownership: Theory and evidence from China

Political connections and state ownership have ubiquitous impacts on the economy, yet the environmental implications are largely unexplored. This paper theoretically and empirically studies the role of political connections and state ownership on the environment in China. Our theoretical analysis indicates that political connections are conducive to more pollutant emissions, and state ownership exhibits a similar direct effect. State ownership also has an indirect effect on pollutant emissions that depends on the interplay with political connections. In the case of chemical oxygen demand (COD), our empirical results show that the effect of political connections is positive, so are the direct and indirect effects of state ownership. Moreover, firm managers' political background of government officials at the county level is mainly accountable for the environmental implication of political connections. Furthermore, we find that political connections mainly affect the implementation of environmental policies, while state ownership could have similar effects on both the implementation and the making of environmental policies.