Environmental regulation, agency costs and financial performance: based on the release of “the new Environmental Protection Law”

The urgency of protecting our planet cannot be overstated. This paper employs Agency Cost Theory, utilizing "the new EPA" as a case study and the difference-in-difference (DID) model to analyze A-share-listed companies in heavily polluting sectors (2012–2018). The research demonstrates that the implementation of the new EPA leads to a sustained enhancement in the financial performance (UnEBIT) of heavily polluting enterprises. Furthermore, the analysis of the mediating effect from a principal-agent perspective reveals that agency costs play a partially mediating role in the relationship between the new EPA and financial performance. The adoption of the new EPA reduces information asymmetry between shareholders and executives, thereby contributing to the improvement in financial performance. Additionally, when examining the diversity among economic regions and the nature of property rights, it is observed that agency costs have a partially mediating role in the three major economic regions. Notably, heavily polluting state-owned enterprises display heightened sensitivity to the implications of the new EPA, indicating a proactive leadership role. These findings have significant implications for enhancing the financial performance of listed companies operating in heavily polluting industries, as well as for contributing to the attainment of carbon peaking and carbon neutrality objectives while advancing the development of China's legal framework.