The driving force in corporate environmental governance: Turnover of environmental protection department directors as an indicator

Due to environmental externalities, micro-enterprises with profit-seeking features do not develop sufficient motivation for environmental governance. In a fiscally decentralized system, local environmental protection authorities perform environmental supervision, and the intensity of the regulations that they implement has an important influence on corporate environmental governance. Based on the promotion tournament framework, this paper aims to discuss the driving mechanism of corporate environmental governance using turnover of environmental protection department directors (EPDDs) as an indicator.

Using samples of A-share companies listed on the Shanghai and Shenzhen exchanges from 2007 to 2014, this paper examines the impact of EPDD turnover on corporate environmental governance and its underlying mechanism.

The results show that corporate environmental governance exhibits a political periodicity that changes with the turnover of the EPDD, and the periodicity remains after controlling for the influence of changes in provincial party secretary and governor. Internal mechanisms analysis indicates that, without financial independence, local environmental protection departments rely on increasing sewage charges, not environmental protection subsidies, to promote corporate environmental governance. Further, considering heterogeneity among officials, it finds that the younger a new EPDD is, the more pronounced the periodicity of corporate environmental governance. However, there is no significant difference between in-system and out-system turnover.

In general, this paper describes the mechanisms of corporate environmental governance from the perspective of political economics, and the results have implications for the potential improvement of the government’s environmental supervision functions and the development of ecological civilization in China.