In environmental authoritarian countries, environmental pollution control relies on government environmental regulation. Theoretically, the certainty and severity of environmental regulation are the key factors in achieving its political goals. According to regulatory space theory, an effective regulatory system needs regulatory power and resources. However, the effectiveness of regulation may be decreased by the desperate need for resources, and the regulated enterprises can also affect environmental regulation through their information advantage and social networks. This paper focuses on how local environmental regulation can be achieved under these conditions. The analysis is conducted from two perspectives: the deterrence effect of punishment and the political connections maintained by enterprises. An empirical test was conducted by analyzing the research data from the 12th China Private Enterprise Survey in 2016. The study found that the severity of punishment is a mediator of environmental regulation in the promotion of enterprises' investment in pollution control, and that it is moderated by the political relationships of enterprise managers. Compared with counterparts that have a less substantial political network, enterprises with more political networks may feel more pressure from environmental regulation policies, which leads to higher pollution fines. However, the promotion effect of environmental fines on an enterprise's investment in pollution control is weakened due to its political relationships, thus weakening the effectiveness of the punishment. This paper clarifies the mechanism through which political connections weaken the effect of environmental regulation: political connections encourage firms to avoid real harm and do false good. Regulation is supposed to use fines as an incentive to improve the environment, but politically connected companies are more willing to pay fines (doing false good), than to invest in cleaning up pollution (avoiding real harm).
Keywords: environmental regulation; policy effect; political connections; regulatory certainty; regulatory severity.