Political connections and firm pollution behaviour : An empirical study

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Title: Political connections and firm pollution behaviour : An empirical study
Author: Deng, Yuping ; Wu, Yanrui ; Xu, Helian
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
Series number: 4/2019
Year of publication: 2019
Publication date: 27.2.2019
Pages: 40
Subject (yso): ympäristön saastuminen; ympäristö; yritykset; suhteet; politiikka; virkamiehet; johtajat
Keywords: Bofit-kokoelma; Kiina; poliittiset suhteet
JEL: Q51; L20; O12
Other keywords: political connections; pollution discharges; political promotion; China
Abstract: A firm's top manager and a government official may be connected due to special circumstances. This social relationship or political connection may provide industrial polluters with protection or a “pollution shelter” which could lead to severe environmental deterioration. This paper aims to examine the link between political connections and firms’ pollution discharges by using Chinese data. Empirical results show that political connections are the institutional origin for firms to adopt strategic pollution discharges. Government officials who are young, of low education, promoted locally and in office for a relatively long time are more likely to build political connections with polluters. This phenomenon results in inadequate enforcement of regulation and emission control. The pollution discharges of politically connected firms also vary considerably due to firm heterogeneity. This study also shows that pollution shelter effects caused by political connections are more obvious in the central and western regions, prefecture cities and capital-intensive industries.
Table of contents: Abstract 4 1 Introduction 5 2 Literature review and hypothesis development 7 2.1 Literature review 7 2.2 Hypothesis development 8 3 Research design 11 3.1 Empirical specifications 11 3.2 Data sources 12 3.3 Variable definitions 13 4 Empirical results 18 4.1 Baseline estimates 18 4.2 Effects of politicians’ heterogeneous background 22 4.3 Effects of firm heterogeneity 24 4.4 Robustness tests 25 4.4.1 Alternative measures for political connections and environmental pollution 25 4.4.2 The effect of outliers 26 4.4.3 Endogeneity tests 27 5 Conclusions and remarks 29 References 31 Appendices 38 Appendix A Variable definitions 38 Appendix B Endogeneity test on mechanisms of political connections influencing the environment 39
Rights: https://helda.helsinki.fi/bof/copyright

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