SOEs have long been criticized for being inefficient compared to their counterparts due to misallocation of resources (Berkowitz et al. 2017; Brandt et al. 2020; Chen et al. 2021; Hsieh and Klenow 2009; Sukhtankar 2016) and poor management (Kang and Kim 2012; Lu et al. 2010), which makes the privatization of SOEs a common choice for countries to gain economic prosperity and market vitality, such as Russia (Sprenger 2011), Ukraine (Mykhayliv and Zauner 2013), Hungary, Romania (Brown et al. 2006), Egypt (Omran 2009) and Spain (Albalate et al. 2020). However, it has widely been recognized that SOEs play roles as multitask takers (Bai et al. 2006) rather than profit maximizers (Jensen 2001). For example, SOEs have long contributed to public services such as providing employment and maintaining social stability (Hsieh and Klenow 2009), which are also the main goals of most governments.
Perceived as the major contributor of pollution (Dahlmann et al. 2019), enterprises are under increasing pressure from regulators, environmental organizations, and the public to undertake more environmental responsibilities and improve their environmental behavior (Berry and Rondinelli 1998; Hart 1995; Walker and Wan 2012). These pressures lead to the popularity among enterprises to improve their corporate environmental performance to avoid market risks (Muhammad et al. 2015), save energy and cost (Chen and Chang 2013; Porter and van der Linde 1995; Sánchez-Medina et al. 2015), gain competitive advantage (Chen 2008; Chuang and Huang 2015; Miles and Covin 2000; Shrivastava 1995), legitimacy (Berrone et al. 2017; Hart 1995) and reputation (Dögl and Holtbrügge 2014; Miles and Covin 2000). Prior studies suggest that the level of environmental performance can be affected by not only internal factors, including corporate size (Bundy et al. 2013; Patten 2002), industry type (Bundy et al. 2013; Patten 2002), availability of resources and capital (Li and Chan 2016; Zhang 2017), CEO hubris (Arena et al. 2018; Zhang et al. 2020), and diversification (Dooley and Fryxell 1999; Kang 2013), but also external factors, including stakeholders’ attitudes (Abreu 2009; Kassinis and Vafeas 2006), pressure from NGOs (Lyon and Maxwell 2008), regulations (Lyon and Maxwell 2008; Yao and Yang 2017), and competition (Duanmu et al. 2018).
Also, different ownership may vary in their environmental performance because of their diverse interests and targets. Although scholars have made a great contribution in using the political connection (Maung et al. 2016), the resource-based view (RBV) (Zhang 2017), and multitask theory (Bai et al. 2006) to explain the difference between SOEs and privately-owned enterprises (POEs), their results are mixed. Some hold the opinion that SOEs outperform in environmental performance (Bai et al. 2006; Fryxell and Lo 2001; Liang and Langbein 2021; Zeng et al. 2012; Zhang 2017) while others argue that SOEs have worse environmental performance (Chun 2009; Jiang et al. 2014; Maung et al. 2016; Rowe and Guthrie 2010; Talukdar and Meisner 2001; Wang et al. 2003). Considering the particularity of state ownership, we believe that one possible reason for the mixed evidence of SOEs’ environmental performance is that the existing literature ignored the leading role of governments in driving the environmental performance of SOEs. With governments as the controlling shareholders, SOEs are subject to stricter supervision and given more priority, which makes the government’s impact on SOEs is much greater and makes SOEs perform better in environmental performance regulated by governments. To better understand the differentiated corporate environmental performance of different ownership and fill the gap between theories and empirical evidence, this article proposes a new interpretation of the SOEs’ corporate environmental performance from the perspective of the responsiveness to the government, that is, they only outperform in regulated aspects.
As a country where SOEs play a dominant role that accounts for approximately forty percent of the national GDP1, China is gradually transforming SOEs into POEs to realize their promotion in productivity and innovation (Bai et al. 2009; Jefferson and Su 2006) since 1997. Therefore, we take advantage of the SOE reform in the late 20th century as an opportunity to use the difference-in-differences (DID) method to not only compare the difference between SOEs and POEs but also mitigate endogeneity problems in ownership and explore the changes in SOEs’ environmental performance after privatization. In addition, China has paid increasing attention to environmental pollution and has enacted various policies to regulate the emission of major pollutants such as sulfur dioxide (SO2). This allows us to examine how SOEs’ environmental performance strategies are affected by the government’s targets and policy goals by comparing the controlled pollutant SO2 and noncontrolled pollutant nitrogen oxides (NOx).
This study explores the differences between SOEs and POEs in their environmental performance using two firm-level databases from 1998 to 2007. Furthermore, we use the DID method to explore how the environmental performance of SOEs changes after privatization. The results are as follows. First, by comparing the results of different pollutants, we find that SOEs perform better for the controlled pollutant SO2, while this difference disappears for NOx, which indicates that SOEs take environmental responsiveness strategies in assuming environmental responsibilities. SOEs produce less, remove more and thus emit less SO2 than do POEs by 5.04%, 18.53%, and 7.13%, respectively. Second, privatized SOEs significantly increased their SO2 production and emissions after privatization by 7.61% and 8.18%, respectively. These results further imply that SOEs in China perform better in regulated environmental aspects and that their corporate environmental performance declines after privatization.
This article contributes to the literature on corporate ownership and environmental performance strategies in five ways. First, different from the existing literature that ignores the effect of differentiated environmental performance strategies, we propose that SOEs take responsiveness strategies to meet the requirements of the government, which highlights the role of various environmental performance strategies. This is of importance to both theory development and empirical research. Second, most existing studies take business development and profitability as the main motivation for enterprises to improve corporate environmental performance, while we focus on special ownership of SOEs and find their differentiated motivation in improving environmental performance is to meet the requirements of the government. Third, most existing studies comparing differences in the environmental performance of different ownership use regional or cross-sectional data, which leads to endogeneity problems due to the existence of missing variables. To alleviate endogeneity problems when comparing the environmental performance of different ownership, we use the exogenous shock of the privatization of Chinese SOEs and the DID approach to compare the differences between reformed and non-reformed enterprises before and after the restructuring. We use enterprise-level panel data covering all industries across the country to mitigate endogeneity problems by controlling firm fixed effects and provide more robust empirical evidence for the literature. Fourth, the use of listed companies, which are among the best companies in the country, as research objects in the existing literature lacks the representativeness of the full sample. Our data, which covers most enterprises across the country, can help us provide representative results to reflect the overall situation in China. Fifth, most existing studies of environmental performance differences of different ownership use comprehensive indicators, including the Kinder, Lydenberg, Domini (KLD) Social Ratings database, or disclosure of CSR reports, which cannot reflect the specific environmental behavior of corporations. We use pollutant emissions, production, and removal as indicators to measure corporate environmental performance. These indicators can reflect the entire process from pollutant generation to emission directly, produce more empirical evidence, and enrich measurements of the corporate environmental performance for the literature.
The remainder of this article is organized as follows. In Section 2, we propose our hypothesis. Section 3 and Section 4 describe the data and econometric models we use to estimate the differences in environmental performance between SOEs and POEs and the impact of privatization on corporate environmental performance, respectively. In section 5, we present our empirical results. Finally, section 6 concludes the article.