Land finance and firms’ pollution: Evidence from China

Examining the influence of local government land finance on the environmental performance of firms is a crucial academic inquiry. This study aims to dissect this issue through the analysis of an extensive sample of Chinese industrial firms. Our findings reveal that land revenue decline results in a significant reduction in firms’ wastewater emissions, and this finding is consistent with using quasi-natural experiments and several robustness tests. Cross-sectional analysis shows that this effect is more pronounced for firms in prefectures highly reliant on land finance and where government officials have strong promotion incentives. However, this effect is notably weaker among State-Owned Enterprises (SOEs). Furthermore, the intensification of environmental regulation serves as the fundamental mechanism through which the land revenue losses contribute to reductions in firms’ wastewater discharge reductions. Overall, our study provides new insights into previously unexplored determinants of corporate pollution emissions from the perspective of land finance.