Does environmental regulation policy help improve business performance of manufacturing enterprises? evidence from China

There is no doubt that environmental regulation policy will increase the production cost of manufacturing enterprises, then can this policy help improve the business performance in the long run? This study aims to explore whether the environmental regulation policy could increase the business performance of manufacturing enterprises (BPME). With the panel data of 467,649 manufacturing enterprises from China Industry Enterprise Database (2010-2013), we employ the comparative statistical analysis to examine the influence of China's environmental regulation policy, in the form of Ten-Thousand Enterprises Energy Conservation and Low Carbon Program (TEP), on the BPME. The empirical results show that first, TEP and BPME are positively correlated, and enterprises with excellent initial performance are more likely to be concerned by TEP. Second, the impact of TEP on BPME is first restrained and then promoted, indicating that there is an inverted U-shaped relationship between the policy and the performance. Third, this promotion effect is mainly reflected through the innovation compensation mechanism and is easier to be seen in non-state-owned, western, and technological-intensive enterprises. This study further confirms the Porter hypothesis and provides the Chinese government with reference for adjusting environmental regulation policies as well as achieving sustainable development.