Main content area

Can environmental regulation promote the governance of excess capacity in China's energy sector? The market exit of zombie enterprises

Du, Weijian, Li, Mengjie
Journal of cleaner production 2019 v.207 pp. 306-316
business enterprises, decentralization, energy, energy industry, environmental law, governance, markets, models, sustainable development, China
Zombie enterprises, which seriously impede the sustainable development of China's economy and have become a major obstacle to the structural reform of China's supply side, exist throughout the Chinese traditional economy. Based on Chinese industrial enterprise data, this paper identifies zombie enterprises in the energy industries with a modified method used by Fukuda and Nakamura (2011) and uses the survival analysis model to test the impact of environmental regulation on the market exit of zombie enterprises. The empirical results show that environmental regulation can speed up the exit of zombie enterprises to achieve the governance of excess capacity for energy enterprises. Moreover, the effect of environmental regulation is influenced by the regional institutional environment. With the increase in the degree of decentralization and the corruption of officials, the influence of environmental regulation on the overcapacity of energy enterprises is weakened. Finally, the mediating effect model reveals that environmental regulation has a “following cost effect” and “innovation compensation effect” in the energy industry, and the “innovation compensation effect” is dominant.