Does foreign equity matter for pollution? Firm-level evidence from China

In this paper, we use Chinese firm-level matched data with rich information on pollution details and financial variables, to investigate the role of foreign equity on pollution behaviors of domestic firms. The empirical results can be organized in three aspects. First, foreign equity plays a positive role in pollution reduction, either we use pols or Tobit model, or we use Propensity Score model to eliminate the estimation bias from sample selection. Second, state-owned firms show larger reduction response to foreign equity, either in form of foreign equity status or the foreign equity intensity. Third, the pollution reduction effects are stronger in low-polluted industries, middle and west areas, and firms with shorter survival time. The straightforward policy implication is that we should keep on attraction of inward foreign direct investment, and foreign equity restriction should be relatexed more in those areas with higher pollution density and near the large and young firms. But for other types of firms, additional regulation policies should be designed to promote their pollution reductions.