Urban environmental legislation and corporate environmental performance: End governance or process control?

Urban environmental legislation is an important institutional arrangement to ensure the orderly progress of ecological civilization construction. It will also affect corporate environmental performance (CEP) due to more binding environmental regulation measures. Firstly, this paper clarifies the theoretical logic and mechanism of the impact of urban environmental legislation on CEP. Secondly, we matched the data of 3642 listed firms from 2010 to 2019 with the panel data of 277 prefecture-level cities, conducted a quasi-natural experiment based on urban environmental legislation, and used the differential-in-difference model (DID) to test the above mechanism. The results show that urban environmental legislation can significantly improve CEP. Our heterogeneity analyses show that urban environmental legislation more significantly impacts firms with strong debt financing ability, perfect internal governance structure, and low equity concentration. The mechanism test demonstrates that urban environmental legislation improves CEP directly by increasing environmental investment and indirectly by increasing media and public attention. According to a quantitative analysis of 714 urban environmental legislation texts, urban environmental legislation has a significant positive impact on corporate environmental operation performance focusing on terminal governance but no significant impact on corporate environmental management performance focusing on process control.