Does the low-carbon city pilot policy work in China? A company-level analysis based on the PSM-DID model

Abstract

To reduce carbon emissions and pursue sustainable economic development, China's central government formulated the low-carbon city pilot (LCCP) policy. Current studies focus primarily on the impact of the policy at the macro level (provinces and cities). So far, no study has looked at the impact of the LCCP policy on companies' environmental expenditures. Besides, as the LCCP policy is a weak-constraining central policy, it is interesting to see how it works at the company level. We employ company-level empirical data and the Propensity Score Matching - Difference in Differences (PSM-DID) method, which outperforms the traditional DID model in avoiding sample selection bias, to address the above issues. We concentrate on the second phase of the LCCP policy from 2010 to 2016, encompassing 197 listed companies in China's secondary and transportation industries. Our statistical results show that if the listed company's host city has piloted the LCCP policy, the company's environmental expenditures are reduced by 0.91 points at the 1% significance level. The above finding calls attention to the policy-implementation gap between the central and the local governments in China, which may make those weak-constraining central policies like the LCCP policy have purpose-defeating outcomes at the company level.

Keywords: Difference-in-differences; Environmental expenditure; Listed companies; Low-carbon city pilot policy; Policy-implementation gap; Propensity score matching.