Environmental Policy, Company Environment Protection, and Stock Market Performance: Evidence from China

This paper studies the impact of environmental protection efforts on the market values of firms using the carbon emission rights trading scheme (CERTS) in China as an exogenous shock. We find that the environmental policy of CERTS increases the market values of firms in the environment industry, the efforts of firms on environmental protection further enhance their market values, and the market values of firms located in the regions with CERTS are further improved. Our findings suggest that firms in the environment industry could improve their market values and obtain benefits by strengthening their environmental protection activities. We offer an important policy implication that the government should enact appropriate policies to improve the activities of firms on environmental protection and the sustainable development of the economy. Copyright (c) 2012 John Wiley & Sons, Ltd and ERP Environment.