How does command-and-control environmental regulation impact firm value? A study based on ESG perspective

The question of whether businesses can balance their "pursuit of profit" with their "benefit to society" is still up for dispute. This study examines, employing China's "Central Ecological Environment Protection Inspectorate" policy as a quasi-natural experiment, the little studied but significant relationship between command-and-control environmental regulation and firm value. According to the study, environmental regulations have a long-lasting and gradual positive impact on company value, particularly for businesses that pollute excessively. This is primarily because environmental rules enhance a company's performance in terms of environmental, social, and governance aspects; additionally, the benefits are amplified by internal controls and analyst attention. Subsequent investigation revealed that command and control environmental regulations boost a company's worth when it is situated in a location with better government relations, less dependency on natural resources, and stronger enforcement. The analysis concludes that there is no conflict between the "pursuit of profit" and the "benefit to society" under command-and-control environmental management. Therefore, governments should advise and support businesses in the areas of the environment, society, and governance; enhance the quality of information disclosed; create differentiated enforcement standards to ensure equity in the costs of environmental regulatory compliance for businesses; and create more inclusive and flexible environmental regulatory policies to enhance the business environment for businesses.