Do state-owned enterprises really have better environmental performance in China? Environmental regulation and corporate environmental strategies

Abstract Although state-owned enterprises (SOEs) have long been criticized for being inefficient compared to their counterparts, they play a vital role in realizing social welfare including the improvement of environmental quality. With governments as their controlling shareholders, the motivations and strategies of SOEs to improve their corporate environmental performance can be very distinct from their privately-owned counterparts. In this article, we propose that a unique strategy that SOEs take in improving their environmental performance is high responsiveness to the government’s goal. Using a unique and detailed firm-level dataset, we find that SOEs perform better for the pollutant assessed by government targets while they perform similarly for the unregulated pollutant compared with their privately-owned counterparts, which indicates that they are more responsive and accountable to achieve policy requirements. Using privatization as an external shock, we find that SOEs worsen their environmental performance with mandatory targets after the privatization, which is consistent with the main results. With the privatization of SOEs worldwide, determining how to avoid the negative effects of privatization as well as to motivate for-profit enterprises to improve corporate environmental performance is the key to achieving a win-win.