Environmental Vertical Management and Enterprises’ Performance: Evidence from Water Pollution Reduction in China

Firm-level evidence for the impact of environmental vertical management on enterprise environmental performance is limited, especially on the performance of water pollution reduction (WPR). Taking the environmental vertical management reform (EVMR) as a quasi-natural experiment, this study constructs a time-varying difference-in-differences model to investigate the effects of EVMR on the WPR performance of enterprises. Using the latest data from the China Industrial Enterprise Database and China Enterprise Pollution Emission Database (1998–2014), we find that EVMR promotes enterprises to improve the performance of WPR. Moreover, heterogeneity analysis shows that the effects vary with regions, industry pollution intensities, and sizes of enterprises. Further mechanism analysis indicates that EVMR reduces water pollution by stimulating production pattern transformation and decreasing fresh water consumption rather than by increasing wastewater treatment facilities. Our empirical findings support the rationality of EVMR in China and provide beneficial insights for enhancing environmental management systems in other developing economies.