Abstract:
Based on the samples of A shares of Chinese listed companies over the period of 2014 to 2016, and using the promulgation of “New Environmental Protection Law” as a Quasi-Natural Experiment, the paper attempts to analyze the relationship between environmental regulation and firms’ financialization using DID method. The results show that: (1)Environmental regulation will not be detrimental to firm’ profit, and it may restrain the enterprise’s behavior of “deviation from real economy” to some degree; (2)Environmental regulation mainly promotes the transformation and upgrading of enterprise operation through R&D mechanism, while it can improve firms’ R&D performance and reduce the “crowding-out effect” of real investment induced by financialization; (3) Environmental regulation can also reduce the tendency of financial investment by enhancing external supervision; (4) Development of green credit can further enhance the dampening effect of environmental regulation on financial investment. Consequently, policy makers should focus on how to promote firms’ operation as a way to avoid deviation from real economy through environmental regulation, and help firms alleviate environmental-related cost through the help of relevant fiscal policies in the future.