Government's green grip: Multifaceted state influence on corporate environmental actions in China

• Published date: 01 February 2018
• Author: Ruxi Wang,Frank Wijen,Pursey P.M.A.R. Heugens
• Date: 01 February 2018
• DOI: http://doi.org/10.1002/smj.2714

RESEARCH ARTICLE

Government’s green grip: Multifaceted state

influence on corporate environmental actions

in China

Ruxi Wang

1

| Frank Wijen

2

| Pursey P.M.A.R. Heugens

2

1

Renmin Business School, Renmin University of

China, Beijing, China

2

Rotterdam School of Management, Erasmus

University, Rotterdam, The Netherlands

Correspondence

Ruxi Wang, Renmin Business School, Renmin

University of China, Beijing, China.

Email: wangruxi@rmbs.ruc.edu.cn

Research summary: Emerging economies such as China

enjoy economic expansion, but also face dramatic envi-

ronmental challenges. China’s government is a central

actor in both stimulating economic activities and pursuing

environmental protection. Drawing on panel data and in-

depth interviews, we examined the influence of the Chi-

nese state at multiple levels on the environmental actions

of publicly listed firms. The results show that corporate

environmental actions follow an inverted U-shape as con-

trol of environmental practices moves from the central

government to the most decentral administrative level.

This curvilinear relationship is positively moderated by

the stringency of environmental regulation and negatively

moderated by environmental monitoring capacity. We

conclude that state influence on corporate environmental

actions in China is multifaceted and subject to “policy-

policy decoupling.”

Managerial summary: As China’s environmental aware-

ness is growing, the country’s government is increasingly

concerned with the question as to how it can improve the

environmental performance of the firms it controls. Our

evidence shows the concurrence of two contravening

government influences on corporate environmental prac-

tices: a performance-enhancing effect of the regulatory

pressure by multiple authorities and a performance-

diminishing effect of the autonomy enjoyed by local gov-

ernments. Both the most centrally and the most decen-

trally controlled firms in China show significantly weaker

environmental performance than those controlled by

intermediary levels of government. The stringency of sec-

torial environmental regulation and environmental moni-

toring capacity affect the strength of the Chinese

government’s green grip.

Received: 10 June 2015 Revised: 26 July 2017 Accepted: 13 August 2017 Published on: 28 November 2017

DOI: 10.1002/smj.2714

Strat Mgmt J. 2018;39:403–428. wileyonlinelibrary.com/journal/smj Copyright © 2017 John Wiley & Sons, Ltd. 403

KEYWORDS

China, corporate environmentalism, environmental

actions, environmental policy, government power

1|INTRODUCTION

The government is a key driver of corporate environmental practices (Delmas & Toffel, 2004;

Henriques & Sadorsky, 1996; Marquis & Qian, 2014; Porter & Van der Linde, 1995). Govern-

ment instruments such as regulation, pollution levies, and subsidies induce firms to develop and

implement environmentally friendly policies (Kemp, Soete, & Weehuizen, 2012). Government

influence has been studied extensively in the context of Western societies (Bansal & Hoffman,

2012; Wijen, Zoeteman, Pieters, & Van Seters, 2012), but scholars have only to a limited extent

investigated how the government affects environmental practices in emerging economies

(Marquis & Raynard, 2015). This is surprising as the combination of high ec onomic growth,

shifts in global industrial production patterns, and important governance challenges (Hoskisson,

Eden, Lau, & Wright, 2000) has led to major environmental problems in many emerging econo-

mies (UNEP, 2012).

The quintessential example is China. After decades of sustained growth, China became the

world’s biggest economy in terms of purchasing power parity in 2014 (IMF, 2014). China also

became the world’s largest emitter of greenhouse gases in 2006, and the leading consumer of (non-

renewable) energy in 2009 (World Bank, 2014), even though the country made progress in terms of

resource efficiency and clean product development (Li & Shui, 2015; Mol & Carter, 2006). The

growing magnitude of the environmental challenges facing emerging economies therefore calls for a

better understanding of their environmental governance.

While researchers have recognized the central role of the government in environmental gover-

nance, they have treated its influence on corporate environmental practices as monolithic, consisting

of a clear and consistent set of expectations (e.g., Delmas & Toffel, 2008; Sharma & Henriques,

2005). However, the government exerts influence at different levels, from the central state to the

village—the most decentral governmental organ. Previous studies have suggested that the Chinese

government is a dominant actor with a complex organizational structure and multiple levels of

administrative hierarchy, each of which may influence corporate behavior in different ways

(Chang & Wu, 2014; Child, Lu, & Tsai, 2007; Luo, Wang, & Zhang, 2017). While the Chinese cen-

tral state has acknowledged the existence of major environmental problems and has served as the

major driver of sustainable development, lower-level administrative branches have not always priori-

tized sustainable development to the same degree (Qi, Ma, Zhang, & Li, 2008). As one Chinese

proverb capturing the mindset of lower-tiered magistrates states: The emperor is as far away as the

sky (tian gao huang di yuan, in Chinese). Local governments thus have their own development

agendas for the firms they control, which need not be consistent with central governmental policies

emphasizing environmental protection.

We focus on the multifaceted impact of the government on corporate environmental actions,

thereby addressing two essential issues. First, we discuss how administrative hierarchical distance—

the number of bureaucratic levels separating the central government and the governmental body that

404 WANG ET AL.