Environmental Regulations and Corporate Financial Assets Allocation: Evidences from the Promulgation of the New Environmental Protection Law

Abstract

Abstract: Based on the data of China's A-share listed companies and taking the promulgation of the new Environment Protection Law as the starting point, the findings of this research show that this policy has significantly increased the financial assets allocation of the heavily-polluting enterprises, leading them to reducing their non-liquid financial assets while increasing their liquid financial assets. This empirically supports the“reservoir”motive of enterprises'holding financial assets. The specific influencing mechanism is as follows: the environment regulations will increase the environmental uncertainty and debt financing difficulty of the heavily-polluting enterprises, and further strengthening their precautionary motives to increase financial assets. Besides, the increase in the allocation of liquid financial assets improves firms'future financial performance, while the increase in the allocation of non-liquid financial assets damages firms'future financial performance, thus environmental regulations will improve the future financial performance through optimizing the allocation structure of corporate financial assets. It is found from further analysis that faced with strict environmental regulations, the non-state-owned enterprises, the small and medium-sized enterprises and the enterprises at the eastern region of the heavily-polluting type will increase their financial assets more significantly. Therefore, we should clearly understand that the allocation of different financial assets will exert differentiated impacts on corporate operation and development, we should be on guard that the excessive non-liquid financial assets held by enterprises will cause damages, and we should encourage the enterprises to deal with the impacts brought by the environmental regulations through holding liquid financial assets.

Key words: environmental regulations, financial assets allocation, transforming the economy from the real to the virtual, the new Environmental Protection Law

ZHANG Chao, SONG Huasheng. Environmental Regulations and Corporate Financial Assets Allocation: Evidences from the Promulgation of the New Environmental Protection Law[J]. JOURNAL OF CONTEMPORARY FINANCE AND ECONOMICS, 2022, 0(2): 73-87.

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