The deterrent effect of environmental judicature on firms' pollution emissions: Evidence from a quasi-natural experiment in China

Abstract

This paper investigates the deterrent effect of environmental judicature on firms' pollution emissions. Regarding the establishment of environmental courts (ECs) in China as a quasi-natural experiment, our staggered Difference-in-Differences (DID) estimation shows that strengthening environmental judicature has a negative, causal effect on firms' pollution emissions. The exogenous establishment of ECs decreases industrial firms' pollution emission intensity by approximately 7.8 %. Heterogeneity analysis shows that the negative effect of ECs on pollution emissions is particularly salient for firms in regions with weak environmental awareness, firms in industries with low competition, and firms with a high intensity of pollution emissions. Mechanism analysis indicates that the establishment of ECs enhances environmental justice and increases environmental violation costs, thereby having a deterrent effect on firms' pollution emissions. To comply with the more stringent environmental judicature, firms located in cities with ECs may temporarily cut their production, use more clean energy and buy more desulfurization equipment. In the long term, they may engage in more green and cooperative innovations, further substantiating the deterrent impact of stringent environmental judicature. Our findings can offer valuable insights for corporate green transformation and government pollution control.