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Institutional Interest, Ownership Type, and Environmental Capital Expenditures: Evidence from the Most Polluting Chinese Listed Firms

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Abstract

This study empirically examines whether firms’ environmental capital expenditures impact institutional investors’ investment decisions in the Chinese market. We particularly examine the impact of ownership type on the relationship of environmental capital expenditures and the behavior of different types of institutional investors by classifying institutional investors into two categories, short-term and long-term investors. In addition, this study further investigates whether environmental capital expenditures related to ownership type increase firm value. We find that long-term institutional investors tend to invest in state-owned firms (SOEs) making environmental capital expenditures. Results also indicate that, with governmental backing and encouragement, the market value of SOEs making more environmental capital expenditures is likely to increase. However, no similar results are found for non-SOEs.

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Notes

  1. “China Green National Accounting Study Report 2004” was the first and only report issued jointly to the public by the State Environmental Protection Administration of China (SEPA) and the National Bureau of Statistics of China (NBS) in 2006. The 2008, 2009 and 2010 Reports were issued later by SEPA alone.

  2. John Talberth, Measuring What Matters: GDP, Ecosystems and the Environment. 14th April 2010 (http://www.wri.org/stories/2010/04/measuring-what-matters-gdp-ecosystems-and-environment, http://www.wri.org/stories/2010/04/measuring-what-matters-gdp-ecosystems-and-environment).

  3. Chinese A-share markets refer to the two domestic stock exchanges, Shanghai and Shenzhen Stock Exchanges. A-Share in Shanghai and Shenzhen stock exchanges refers to a class of shares traded in Chinese currency. Currently only domestic citizens are allowed to trade A-Shares. Another class of shares in the two mainland Chinese stock exchanges, known as B-Shares, are traded in foreign currencies. In the past, only non-Chinese citizens were allowed to trade B-Shares. Starting from March 2001, mainlanders can trade B-Shares as well.

  4. Anonymous, 9th Jan, 2013, The China Securities Journal (http://news.xinhuanet.com/fortune/2013-01/09/c_124205374.htm).

  5. With the aim of reducing energy intensity (the amount of primary energy consumed per unit of GDP produced), the China National Development and Reform Commission, the State Energy Office, and the NBS jointly set a plan to establish an Energy Efficiency Public Announcement System in 2005.

  6. According to Bushee (1998), such a classification is based on the argument in Porter (1992). In addition, because of existing contrasting views in Monds and Minow (1995), Bushee only hypothesizes the first two categories of institutional investors, namely “transient” and “dedicated,” in terms of their investment behavior.

  7. According to China’s Ministry of Environmental Protection, investments in pollution abatement and control include three sections, investments in old industries’ pollution source control, investments in urban environmental infrastructure construction, and investments in construction projects (including newly built, rebuilt, and extension projects),of environmental protection (http://zls.mep.gov.cn/hjtj/nb/2012tjnb/201312/t20131225_265542.htm). While each province in China sets its own regulations on energy savings and standards of pollution discharge, governments also provide financial supports to assist companies in purchasing energy-efficient systems. Information on investment in pollution abatement and control, energy savings, etc. is disclosed in companies’ annual reports under “construction in process.”

  8. Considering that most previous tests demonstrate significant results for state-owned companies, we conduct endogeneity tests in the group of state-owned companies only.

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Acknowledgments

The authors gratefully acknowledge financial support provided by the Chinese Ministry of Education (Grant No.: 10YJA790127), the National Natural Science Foundation of China (Grant No. 71032006, 71372167 and 71372166), the National Social Science Foundation of China (Grant No.14AZD068), the Natural Science Foundation of Guangdong Province (Grant No. S2013010013051) and the College Young Scholar Supported Program of Guangdong Province (Grant No. Yq2013017). We would also like to express our most sincere appreciation to the editor, Thomas Clarke, and the two anonymous reviewers for their constructive comments.

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  1. School of Management, Jinan University, Guangzhou, Guangdong, China

    Wenjing Li

  2. School of Business, Sun Yat-sen University, Guangzhou, Guangdong, China

    Xiaoyan Lu

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Li, W., Lu, X. Institutional Interest, Ownership Type, and Environmental Capital Expenditures: Evidence from the Most Polluting Chinese Listed Firms. J Bus Ethics 138, 459–476 (2016). https://doi.org/10.1007/s10551-015-2616-2

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