The role of environmental justice reform in corporate green transformation: Evidence from the establishment of China’s environmental courts

Purpose: The establishment of environmental courts in China provides a good opportunity to explores the economic effects of environmental justice reform. This paper investigates how the environmental justice reform can influence corporate green transformation from the perspective of green technology innovation and explores the potential mechanisms of how the environmental courts affect green technology innovation. The heterogeneous effects of environmental courts are also considered.

Methodology: Using the establishment of environmental courts in China as a quasi-natural experiment, this paper adopts a difference-in-difference (DID) method to conduct empirical test based on data on Chinese listed A-shared firms from 2004 to 2019. Moreover, this paper use propensity score matching (PSM), tobit and negative binomial regression method to address possible estimation bias.

Findings: The establishment of environmental courts significantly enhances green technology innovation among enterprises. The more effective judicial enforcement and better public awareness of the environment brought by the environmental courts will increase the cost of illegality and external supervision pressure for firms, which will lead firms to innovate in green technology. Furthermore, the positive and significant effect of environmental courts on green technology innovation is more pronounced in state-owned enterprises (SOEs) and enterprises located in regions where local protectionism is more serious or regions with more ideal environmental legal system.