Is Pollution Internalized? A Study of the Impact of Environmental Administrative Penalties on Companies’ Earnings in China’s Thermal Power Industry

Under the background of green development, China actively promotes environmental protection policies, and the pressure of transformation of highly polluting industries increases accordingly. This paper chooses the thermal power industry, which consumes relatively more coal and pollutes relatively more, as the research object, analyzes listed companies from the perspective of environmental protection administrative penalties, and proposes the environmental protection administrative penalties constraint effect and the pollution externalization effect, which are the two reaction pathways of companies when facing the possibility of pollution. By analyzing the financial statements of 25 thermal power companies and the number of environmental administrative penalties during the period from 2013 to 2020, it is found that the net profits of listed companies in the thermal power industry that are subject to more environmental administrative penalties are more sensitive to the number of environmental administrative penalties, which suggests that environmental administrative penalties play a role in restraining the polluting behaviors of companies. This means that in the thermal power industry, the administrative penalty constraint effect is greater than the pollution externalization effect, and the supervision of our environmental protection department is appropriate and the guiding role is obvious.