The impact of local gambling preferences on firm‐level environmental violations: Evidence from China

Abstract We examine the impact of local gambling preferences on firms' environmental violations using a sample of Chinese firms. Our findings suggest that firms in regions with high gambling preferences have higher environmental and continuous environmental violations. The results are robust to using two stage least square (2SLS) regression analysis, a propensity score matching sample, other robustness tests, and excluding alternative explanations of social responsibility and financial pressure. Further analysis shows that the impact of gambling preferences on environmental violations is more salient for firms with high managerial overconfidence and low environmental awareness. Hence, the illusion of control and underestimating the punishment costs are underlying causes.