THE MODERATING EFFECT OF ENVIRONMENTAL PROTECTION SUBSIDIES ON THE RELATIONSHIP BETWEEN ENVIRONMENTAL REGULATION AND CHINESE LISTED ENTERPRISE PERFORMANCE

Abstract

China has accelerated its transition toward green development through the implementation of stringent 
environmental regulations, placing increasing pressure on enterprises to comply. These enterprises often face 
the challenge in balancing short-term profitability with long-term sustainability objectives. Notably, state
owned enterprises and non-state-owned enterprises exhibit differential responses to such regulations due to 
variations in ownership structures. This study examines the impact of environmental regulations on 
enterprises performance among Chinese-listed manufacturing enterprises and explores the moderating role 
of environmental protection subsidies. Utilising panel data from 143 listed manufacturing firms in China 
between 2010 and 2023, the study employs Tobin’s Q as the proxy for dependent variable to assess enterprise 
performance, with environmental regulation as the independent variable and environmental protection 
subsidies as the moderating variable. The empirical findings indicate that environmental regulation 
significantly and positively influences enterprise performance, with stricter regulations associated with higher 
market valuations. Moreover, environmental protection subsidies showed a significant positive moderating 
effect, mitigating the financial burden of regulatory compliance. This moderating effect is more pronounced 
among state-owned enterprises, likely due to their stronger alignment with governmental priorities and 
enhanced access to policy resources. The study contributes theoretically by examining how institutional 
pressures and incentive mechanisms jointly influence enterprise performance in emerging economies. 
Practically, the findings offer valuable insights for policymakers aiming to design effective environmental 
policies and for business leaders and investors seeking to integrate environmental responsibility with financial 
performance.