Frontiers in Business, Economics and Management 
ISSN: 2766-824X | Vol. 15, No. 2, 2024 

 

370 

The Influence of Central Ecological and Environmental 
Protection Supervision on the Performance of 
Environmental Protection Enterprises 

-- Based on analysis of listed companies 

Rubing Qi 

Nanjing Normal University, Nanjing, China 

 

Abstract: Based on the semi-annual financial data of China's listed enterprises from 2017 to 2022, this paper divides the 
sample enterprises into environmental listed enterprises and other general listed enterprises in the industry of environmental 

listed enterprises, and evaluates the impact and mechanism of the "Regulations on the Supervision of Central Ecological and 

Environmental Protection" on the performance of environmental listed enterprises through the difference -difference method. 

This paper finds that the Regulation reduces the performance level of environmental listed enterprises. The strengthening of 

regulatory effect and the reduction of innovation input are the important mechanisms. From the perspective of heterogeneity 

effect, the Regulation has greater inhibitory effect on the performance of private environmental protection enterprises, but has 

no significant effect on the performance of state-owned environmental protection enterprises. Compared with small-scale 

environmental protection enterprises, the "Regulations" have less inhibitory effect on the performance of large-scale 

environmental protection enterprises. After a variety of robustness tests, the conclusions of this study are still valid, which can 

provide important reference for relevant government departments to formulate appropriate environmental policies and promote 

the stable and healthy development of environmental protection enterprises. 

Keywords: Central environmental supervision, Enterprise performance, Environmental regulation, Compliance, Cost, 
Innovation and investment. 

 

1. Introduction 

With the rapid development of China's economy, 

ecological and environmental problems have become 

increasingly prominent. In order to improve the 

environmental governance efficiency of local governments 

and solve ecological environmental problems, the central 

environmental protection supervision system came into being. 

In terms of actual results, the first round of central 

environmental protection inspectors through filing penalties, 

interviews, detention, accountability and other accountability 

methods, effectively promoted the local party committee's 

attention to environmental protection work, and local 

environmental governance departments have made a series of 

substantive environmental governance work. However, in the 

process of carrying out the work of the first round of central 

environmental protection inspectors, there is still a lack of 

some more detailed work regulations and work requirements, 

and it is necessary to further strengthen the legal basis of 

supervision work. To this end, the "Central Ecological 

Environmental Protection Work Regulations" (hereinafter 

referred to as the "Regulations") was officially issued and 

implemented on June 6, 2019, the "Regulations" clarify more 

detailed work regulations and requirements, consolidate the 

legal basis of supervision work, aimed at better guiding the 

second round of environmental protection supervision work, 

compacting ecological environmental responsibility, and 

strengthening ecological environmental protection work. In 

the process of promoting ecological civilization construction 

and strengthening ecological environmental protection, 

environmental protection enterprises are important 

participants. Environmental protection enterprises not only 

practice new development concepts for other enterprises, 

explore the establishment and improvement of ESG internal 

system and management framework, and accelerate green and 

low-carbon transformation, but also accumulate a lot of 

experience and practices. It also provides services and 

solutions for the whole life cycle of environmental protection 

projects for other enterprises. The Party's 20th National 

Congress also put forward a series of new ideas, new 

requirements, new goals, and new deployments for the 

construction of ecological civilization, clearly requiring 

strengthening the green transformation of the development 

mode, further promoting environmental pollution prevention 

and control, increasing ecosystem protection, actively and 

steadily promoting carbon to peak carbon neutrality, and 

taking "strengthening the environmental protection industry" 

as an important starting point for promoting green 

development. It can be seen that the study of the impact of 

environmental protection enterprises on the central ecological 

environmental protection supervision has important practical 

significance for modern environmental governance and green 

development. 

As environmental governance has attracted more and more 

attention from the state, many scholars have also studied the 

implementation effect of the central environmental protection 

supervision. The existing literature research mainly focuses 

on the pollution control effect of the central environmental 

protection supervision and its impact on the environmental 

governance behavior of enterprises. Wang Ling et al. (2019), 

Liu Zhangli and Wu Jiannan (2019), Jia et al. (2019), Zhou 

Xiaobo and Ma Tianming (2020) analyzed the impact of the 

first round of central environmental protection inspectors on 

air quality, and the results all showed that central 



 

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environmental protection inspectors can effectively improve 

air quality, but there are disputes on the sustainability of 

improvement. The research on the influence of central 

environmental supervision on enterprises' environmental 

governance behavior mainly focuses on enterprises' green 

innovation and enterprises' environmental protection 

investment. For the former, some scholars concluded that the 

first round of central environmental protection supervision 

improved the level of green innovation of enterprises in 

pollution-intensive industries (Li Yihegao, 2021; For the 

latter, Yang Liuyong, Zhang Zeye and Zheng Jianming (2021) 

found that the first round of central environmental protection 

supervision has a sustained and significant promoting effect 

on enterprises' environmental protection investment. Only a 

small number of scholars have studied the impact of central 

environmental protection inspectors on the economic benefits 

of enterprises. Chen Renjun and Xiao Qinglan (2019) found 

that the first round of central environmental protection 

inspectors can improve the performance of industrial 

enterprises through innovation. To sum up, most scholars in 

the past used the first round of central environmental 

protection inspectors as the impact point of environmental 

policies to study the pollution control effect of central 

environmental protection inspectors, the impact on 

enterprises' environmental governance behavior and the 

impact on enterprises' economic benefits, while few studied 

the implementation effect of the second round of central 

environmental protection inspectors. In addition, the main 

objects of previous studies were mostly high-polluting 

enterprises, and few literatures studied the impact of central 

environmental protection supervision on the economic 

benefits of environmental protection enterprises. In the 

process of ecological environment governance and green and 

low-carbon transformation, the resource-saving and 

environment-friendly products and services provided by 

environmental protection enterprises are particularly critical. 

Environmental protection enterprises play a vital role in 

improving ecological environment governance and achieving 

green development. Therefore, under the background of the 

requirements of ecological and environmental governance in 

the new era and the green transformation of development 

mode, this paper makes a pioneering study on the impact of 

the second round of central environmental protection 

supervision on the performance of listed environmental 

protection companies and the mechanism principle. It helps 

us to understand the development status of environmental 

protection enterprises, understand the problems encountered 

in the operation of environmental protection enterprises, and 

provide good environmental policy suggestions for the 

healthy development of environmental protection enterprises 

in the future, so as to better strengthen the supporting role of 

environmental protection industry in building a modern 

environmental governance system and achieving green 

development. 

Based on this, this paper takes the "Regulations on the 

Supervision of Central Ecological and Environmental 

Protection" formulated and promulgated on June 6, 2019 as A 

quasi-natural experiment, takes China's A-share 

environmental protection listed companies and non-

environmental protection general listed companies in their 

industries as research objects, and uses the differential 

differential method to investigate the impact of the second 

round of central environmental protection supervision on the 

performance of environmental protection listed companies. 

Compared with existing literatures, the possible research 

contributions of this paper are as follows: First, based on the 

micro-enterprise level, this paper reveals the impact and 

mechanism of central environmental protection inspectors on 

the performance of environmental protection enterprises, 

expands and enrichis the research on the policy effect of 

central environmental protection inspectors and the 

performance of environmental protection enterprises, and 

helps to understand the role of local governments and micro-

enterprises in environmental governance. Second, this paper 

makes a pioneering study of the impact of the second round 

of environmental protection inspectors on the performance of 

environmental protection enterprises, and conducts a 

heterogeneity analysis from three aspects: enterprise 

ownership, scale and regional investment in environmental 

protection governance. The research conclusion is timely and 

innovative. Third, central environmental protection 

inspectors with "supervision" as the core is a major 

institutional innovation in China's ecological civilization 

construction. This paper provides empirical evidence on 

vertical environmental protection management by examining 

the environmental governance effects of the second round of 

central environmental protection inspectors, and provides 

policy inspiration for the subsequent promotion of 

environmental protection inspectors, the construction of 

environmental governance system and the implementation of 

other areas of supervision work. 

2. Research Hypothesis 

2.1. Central Environmental Supervision and 
the Performance of Environmental Listed 

Companies 

In the context of the second round of central environmental 

inspection work launched, high-polluting enterprises will 

inevitably increase the demand for products and services 

provided by environmental protection enterprises. The 

normalization of environmental protection "supervision high 

pressure" and the continuous improvement of environmental 

management mechanism have spawned the transformation of 

potential environmental protection market demand. As a 

result, overconfident managers may develop the illusion that 

expanding the size of the enterprise can improve the 

performance and value of the enterprise. Overconfidence, as 

a kind of psychological cognitive bias, usually causes 

managers to overestimate income, underestimate risk and cost 

during project evaluation, generate the illusion of control, 

overestimate their ability to control the situation and 

operation and management, and then adopt radical investment 

strategies (Ye Ling, 2013). Based on this psychological 

cognitive deviation, managers will expand the scale of 

enterprises in a short period of time, thus making the factor 

input mix of enterprises deviate from the optimal level. As a 

result, the asset operation efficiency of enterprises becomes 

low due to the expansion of scale, resulting in diminishing 

returns to scale, and thus reducing the performance of 

environmental protection listed companies. On the other hand, 

compliance costs believe that environmental regulation is 

equivalent to imposing additional constraints on the decision-

making process of enterprises (Palmer et al., 1995), and 

enterprises in areas with high environmental regulation 

intensity will increase the difficulty and cost of production, 

sales and management. Ghosal et al. (2019) point out that 

environmental regulation can lead to improvements in 



 

372 

environmental conditions, but may increase unnecessary 

production costs, thereby limiting business productivity. The 

second round of central environmental protection inspectors 

will implement the new development concept and promote 

high-quality development as an important content of the 

inspectors, and put forward higher requirements for the 

operation and development of enterprises. In order to meet the 

needs of the government, the market and the public for 

environmental protection and ecological civilization, 

environmental protection enterprises should not only 

strengthen the compliance of the internal production mode, 

but also monitor the changes in the external environment in 

real time, and timely release the social responsibility report, 

sustainable development report or environmental report to the 

public. Under the high pressure of the second round of 

environmental protection supervision, environmental 

protection enterprises need to bear higher compliance costs. 

Higher compliance costs make enterprises reduce capital 

investment in technology research and development and 

productive investment activities, thus reducing the 

performance of environmental protection enterprises. 

Therefore, hypothesis H1b is proposed. 

H1: The central environmental protection supervision has 

a inhibiting effect on the performance of environmental 

protection enterprises. 

3. Strategy for Research 

3.1. Sample Selection and Data Description 

Based on the data of Shanghai and Shenzhen A-share listed 

companies from 2017 to 2022, this paper conducts an in-depth 

analysis of how central environmental inspectors affect the 

performance of listed companies in the environmental 

protection category. Considering that the central 

environmental protection inspectors have a greater impact on 

high-polluting enterprises, non-environmental high-polluting 

enterprises are eliminated, and finally ST enterprises are 

eliminated, and 92 environmental listed enterprises and 793 

non-environmental listed enterprises are selected. The data of 

sample environmental protection enterprises are from the 

Wind database, and the semi-annual financial data of 

performance indicators and control variables are from the 

CSMAR database. On this basis, the original data were 

processed as follows: abnormal or seriously missing 

observations were eliminated, and 1% and 99% indentation 

were performed on relevant continuous variables, and 7509 

valid samples were finally obtained. 

3.2. Research Design 

Based on the "Regulations on the Supervision of Central 

Ecological and Environmental Protection" issued by the 

General Office of the Communist Party of China Central 

Committee and The General Office of the State Council on 

June 6, 2019, as the standard natural experiment, 

environmental protection listed companies and non-

environmental protection listed companies from 2017 to 2022 

were selected as the research objects. This article sets the 

Central Environmental Protection Inspection (CEPS) as an 

interactive item of Postt and treati. If the enterprise is an 

environmental protection listed enterprise, treati is 1, and the 

rest is 0. Postt takes into account the center 

Environmental inspectors aim to establish a "party and 

government responsibility" long-term governance 

mechanism in the field of environmental management, so the 

central environmental inspection team will still have a far-

reaching impact after the departure, so we set the half year on 

December 31, 2019 and after 1, and the half year before 

December 31, 2019 is set to 0. The difference-difference 

method is used to test the impact of central environmental 

protection inspectors on the performance of listed 

environmental protection enterprises: 

𝑹𝑶𝑨𝒊𝒕=𝜶𝟎 + 𝜷𝟏𝑪𝑬𝑷𝑺 + 𝜷𝟐𝑿𝒊,𝒕 + 𝝁𝒊 + 𝜸𝒕 + 𝜺𝒊,𝒕   (1) 

Among them, the explained variable is enterprise 

performance. Referring to the research of Xu Feng et al. 

(2022), this paper adopts return on total assets ROA. 

Measured as the ratio of net profit for the rolling 12 months 

to the average balance of total assets. According to the 

research of Chen Zhigang (2022) and Xu Feng (2022), select 

the control variables Xi,t . μi and γt represent individual fixed 

effects and time fixed effects, respectively, and εi,t represent 

random disturbance terms. In this paper, clustering standard 

error (cluster) is carried out at the industry level. 

3.3. Descriptive Statistics 

Table 1 reports the results of statistical analysis of the main 

variables. Among them, the explained variables and control 

variables are semi-annual data variables. The mean value of 

ROATTM is 0.041, the standard deviation is 0.082, the 

minimum value is -0.745, and the maximum value is 0.816, 

indicating that there are great differences in ROATTM among 

different enterprises. The mean value of Treat is 0.117, 

indicating that 11.7% of the enterprises in this paper are 

environmental protection enterprises. 

Table 1. Descriptive statistics 

Variable 

types 
Name Obs Mean S.D Min 

Ma

x 

Core 

independe

nt 

variables 

ROAT

TM 
7509 0.041 0.082 -0.745 

0.81

6 

ROET

TM 
7509 0.062 0.148 -0.998 

0.37

6 

Policy 

variables 

Treat 7509 0.117 0.321 0 1 

Post 7509 0.646 0.478 0 1 

Control 

variables 

Aslbrt 7509 0.420 0.181 0.072 
0.88

5 

Far 7509 0.157 0.103 0.002 
0.81

0 

Size 7509 22.03 1.102 19.780 
26.4

30 

MB 7509 1.961 0.870 1.078 
8.68

9 

Finpro 7509 0.156 0.496 -1.005 
3.30

6 

Fratio 7509 2.427 1.892 0.564 
13.8

10 

CashT

TM 
7509 0.084 0.219 -5.100 

4.08

3 

 

4. Empirical results and analysis 

In this paper, we estimate the benchmark model by 

controlling industry fixed effect, time fixed effect and 

standard error clustering to industry level. 

 

 

 

 

 



 

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Table 2. Benchmark analysis 

Variable 
(1) (2) (3) 

ROATTM ROATTM ROATTM 

    

CEPS -0.0309*** -0.0173*** -0.0270*** 

 (0.00872) (0.00345) (0.00784) 

Controls YES YES YES 

Time fxed 

efect 
YES YES YES 

Industry 

fxed efect 
YES NO YES 

Clustering 

level 
industry No industry 

Observations 7,509 7,509 7,509 

R-squared 0.035 0.199 0.207 

***, ** and * indicate signifcant levels at 1%, 5% and 10% 

respectively, and robust standard errors are reported in 

parentheses 

 

Table 2 reports the differential empirical results of the 

enactment of the Regulations on the Supervision of Central 

Ecological and Environmental Protection affecting the 

performance of listed environmental protection enterprises. 

Column (1) controls the industry fixed effect and time fixed 

effect without adding control variables, and column (2) 

controls the time fixed effect with adding control variables. 

Column (3) controls industry fixed effects and time fixed 

effects, and adds control variables. All the estimated results 

show that the coefficient of CEPS is significantly negative 

regardless of whether control variables are added or not and 

whether the fixed effects of the industry are controlled, 

indicating that the enactment of the Regulations significantly 

reduces the performance of listed companies in the 

environmental protection category, and hypothesis H1b is 

established. 

4.1. Robustness test 

4.1.1. Parallel trend test 
An important premise for the use of the differential method 

is that the experimental group and the control group should 

have a parallel trend before the implementation of the policy, 

otherwise the estimated results will be biased. Therefore, this 

paper uses the event study method to select the performance 

difference of environmental protection enterprises and non-

environmental protection enterprises in different semi-years 

to conduct parallel trend test. With reference to the method of 

Serfling (2016), we selected the first half year before the 

development of the Regulations (the first half of 2019) as the 

base period to analyze whether the environmental enterprise 

performance of the experimental group and the control group 

had a parallel trend before the development of the Regulations. 

The model is as follows: 

 𝒀𝒊,𝒕=𝜶𝟎+∑ 𝜷𝒎
𝟐𝟎𝟐𝟐
𝒎=𝟐𝟎𝟏𝟕 × 𝑻𝒓𝒆𝒂𝒕𝒊,𝒕 + 𝜷𝒏𝑿𝒊,𝒕 + 𝝁𝒊+𝜸𝒕+𝜺𝒊,𝒕(2) 

This paper takes the first period before the implementation 

of the policy as the base period to test the dynamic trend 

change of environmental protection enterprises in the two 

periods before the promulgation of the Provisions to the last 

four periods, and Treat represents the interaction term 

between the virtual variables of the experimental group and 

the control group and the virtual variables of the year. Figure 

1 reports the regression results of parallel trends. The results 

show that there is no significant difference between the 

enterprises in the experimental group and the control group 

before the promulgation of the Regulations on the 

Supervision of Central Ecological and Environmental 

Protection before the implementation of the green and low-

carbon transformation policy, which well satisfies the parallel 

trend hypothesis. 

 
Figure 1. Parallel trend test 

4.1.2. Placebo test 
Referring to the method of Shi Daqian et al. (2018), this 

paper selects the occurrence time of the second round of 

central environmental inspection policy in advance to conduct 

a counterfact test. In the time range from the second half of 

2017 to the second half of 2020, any half year is randomly 

selected as the implementation time of the second round of 

central environmental inspection policy, and the crossover 

term is reconstructed for regression. The results are shown in 

columns (1) to (4) of Table 3. Whether December 31, 2018 or 

June 30, 2019 is taken as the implementation time point of the 

policy, the coefficient of CEPS is not significant, that is, 

advancing the implementation time of the second round of 



 

374 

central environmental inspection policy will not cause 

significant changes in the impact of central environmental 

inspection on the performance of environmental protection 

enterprises. It shows that "Regulations" is indeed the cause of 

the performance difference between environmental protection 

enterprises and non-environmental protection enterprises. 

 

Table 3. Placebo test 

Policy Years 
2017 second half—2019 second half 2017 second half—2020 second half 

2018-12-31 2019-06-30 

variant ROATTM (1) ROATTM (2) ROATTM (3) ROATTM (4) 

     

CEPS -0.00848 -0.0111 -0.0219 -0.0223 

 (0.00980) (0.00746) (0.01983) (0.01770) 

Controls YES YES YES YES 

Time fxed efect YES YES YES YES 

Industry fxed efect YES YES YES YES 

Clustering level industry industry industry industry 

Observations 3,369 3,369 4,952 4,952 

R-squared 0.037 0.175 0.038 0.196 

***, ** and * indicate signifcant levels at 1%, 5% and 10% respectively, and robust standard errors are 

reported in parentheses 

4.2. Analysis of the mechanism  

Through the above analysis, it can be found that the central 

environmental protection supervision significantly inhibits 

the performance of environmental protection enterprises. 

However, as an environmental protection policy characterized 

by "supervision", the central environmental protection 

inspector does not directly focus on the environmental 

violations of enterprises, but strengthens the motivation of 

local environmental governance by strengthening the 

supervision of the implementation of local environmental 

policies, which further affects the governance behavior of 

environmental protection enterprises, and finally affects the 

performance of environmental protection enterprises. In this 

context, local governments have a large policy space to 

regulate and guide the environmental governance behavior of 

enterprises, and the choice of different policy tools will 

directly affect the environmental governance behavior and 

production and operation status of enterprises in the future. 

Therefore, it is of great significance to explore the mechanism 

of central environmental supervision inhibiting the 

performance of environmental protection enterprises. 

4.2.1. Mediating effect of environmental regulation 
Environmental supervision is divided into local 

government environmental supervision and public opinion 

supervision. The former means that local governments 

impose hard constraints on the disclosure of environmental 

information by increasing penalties for environmental 

violations, increasing the cost of enterprise violations, and 

taking laws and regulations as direct means, supplemented by 

other means such as environmental information disclosure, 

environmental standards or agreements (Wang Jianming, 

2008). The latter means that enterprises' environmental 

governance behaviors and social responsibilities are 

influenced by social mechanisms such as media, ngos, and 

environmental accidents, and these pressures play a role 

through the supervision mechanism of public opinion. As an 

important participant in the environmental governance 

system, environmental protection enterprises will inevitably 

be subject to more stringent environmental behavior 

supervision by local governments and more public 

supervision under the second round of central environmental 

protection supervision, mainly reflected in pollution 

emissions, energy conservation and environmental protection, 

sustainable development, social responsibility report 

disclosure and other aspects. Due to strict environmental 

supervision from local governments and public opinion 

supervision, environmental protection enterprises are under 

pressure to commit to the compliance and sustainability of 

business operations. Environmental regulation is equivalent 

to imposing additional constraints on the decision-making 

process of enterprises (Palmer et al., 1995). Enterprises in 

areas with high environmental regulation intensity will 

increase the difficulty and cost of production, sales and 

management. As a result, environmental companies have to 

bear additional costs, which may inhibit their performance. 

Referring to the practice of Ye et al. (2022), this paper adopts 

the management expense ratio (MER) of enterprises to 

measure the regulatory effect. The higher the MER, the 

stronger the regulatory effect brought by the central 

environmental supervision to enterprises.  

Table 4. Mediating effects of environmental regulation 

Variable 
(1) (2) (3) 

ROATTM MER ROATTM 

    

MER   -0.265*** 

   (0.0423) 

CEPS -0.0275*** 0.0192*** -0.0224** 

 (0.00786) (0.00533) (0.00841) 

Controls YES YES YES 

Time fxed 

efect 
YES YES YES 

Industry fxed 

efect 
YES YES YES 

Clustering 

level 
industry industry industry 

Observations 3,768 3,768 3,768 

R-squared 0.209 0.189 0.267 

***, ** and * indicate signifcant levels at 1%, 5% and 10% 

respectively, and robust standard errors are reported in 

parentheses 

 

As shown in Table 4, column (1) is the baseline regression, 

indicating that the enactment of the Regulations has a 



 

375 

inhibitory effect on the performance of environmental 

protection enterprises; The cross-multiplying coefficient of 

CEPS in column (2) is 0.0192, indicating that the introduction 

of the Regulations has increased the rate of management 

expenses of environmental protection enterprises. In column 

(3), the MER coefficient is significantly -0.265 and the 

coefficient of CEPS is -0.0224, indicating that the 

introduction of the Regulations will inhibit the performance 

of environmental protection enterprises by increasing the rate 

of management expenses of environmental protection 

enterprises. Analyzing the reasons, enterprises in high 

environmental regulation areas require a large capital cost in 

equipment procurement, research and development and 

process upgrading, and enterprises may reduce capital 

investment in research and development, production and 

investment activities, thereby losing market share and 

competitive advantage, and damaging their performance and 

productivity (Zhang & Vigne, 2021). Under the 

implementation of the second round of central environmental 

protection supervision, environmental protection enterprises 

face stronger environmental supervision by local 

governments and more supervision by public opinion, and 

bear additional costs for the compliance and sustainability of 

business operations, thus reducing the performance of 

environmental protection enterprises. 

4.2.2. The intermediary effect of technological innovation 
Porter's hypothesis holds that although environmental 

regulations increase production costs in the short term, 

appropriate environmental regulations are beneficial and can 

stimulate R&D investment and enterprise innovation. The 

resulting improvements in technological production 

processes can compensate for environmental regulatory costs 

and further improve corporate performance. However, under 

the second round of central ecological and environmental 

protection supervision, environmental protection enterprises, 

as important participants in environmental governance, will 

naturally receive special attention from local governments 

and the public. From the empirical analysis above, we can 

conclude that environmental protection enterprises have 

increased their management cost rate after the second round 

of central environmental protection supervision. In other 

words, environmental protection enterprises face huge 

pressure of environmental regulation and need to bear more 

compliance costs. In addition, in the second round of central 

environmental inspectors on the content of the "Provisions" 

to implement the new development concept, to promote high-

quality development as the content of the inspector, to further 

enrich the connotation of the inspector. This means that the 

research and development technology of environmental 

protection enterprises is facing higher requirements, and the 

innovation research and development of environmental 

protection enterprises should not only be limited to the 

research and development of end treatment and other 

conventional strategic pollution reduction and reduction 

technologies, but should pay more attention to the research 

and development of source control (Liu Jinke, 2022).  

As shown in Table 5, column (1) is the baseline regression, 

indicating that the enactment of the Regulations has a 

inhibitory effect on the performance of environmental 

protection enterprises; The cross-multiplication coefficient of 

CEPS in column (2) is -0.196, indicating that the introduction 

of the Regulations reduces the R&D investment of 

environmental protection enterprises; In column (3), the Rd 

coefficient is significantly 0.0138 and the coefficient of CEPS 

is -0.0276, indicating that the introduction of the Regulations 

will inhibit the performance of environmental protection 

enterprises by reducing their R&D investment. Analysis of 

the reasons, under the second round of central environmental 

protection supervision, environmental protection enterprises 

will face stronger environmental regulations, which will 

increase their corresponding compliance costs, and 

technology research and development has the characteristics 

of long cycle, high difficulty and high risk, resulting in 

environmental protection enterprises to reduce the 

expenditure on research and development investment in the 

short term, and thus reduce the performance of environmental 

protection enterprises. 

Table 5. Mediating effect of innovation input 

Variable 
(1) (2) (3) 

ROATTM Rd ROATTM 

    

Rd   0.0138*** 

   (0.00317) 

CEPS -0.0303*** -0.196** -0.0276*** 

 (0.00853) (0.0814) (0.00730) 

Controls YES YES YES 

Time fxed 

efect 
YES YES YES 

Industry fxed 

efect 
YES YES YES 

Clustering 

level 
industry industry industry 

Observations 5,733 5,733 5,733 

R-squared 0.226 0.642 0.242 

***, ** and * indicate signifcant levels at 1%, 5% and 10% 

respectively, and robust standard errors are reported in 

parentheses 

4.3. Heterogeneity analysis of the impact of 
central environmental protection 

inspectors on the performance of 

environmental protection enterprises 

4.3.1. Heterogeneity analysis of enterprise ownership 
The Regulations on the Supervision of Central Ecological 

and Environmental Protection may have different impacts on 

enterprises with different property rights. The specific 

heterogeneity regression results are shown in Table 6. From 

the regression results of columns (1) and (2) in Table 8, we 

find that the CEPS coefficient of a private enterprise is -

0.0227 and is significant at 5%. The CEPS coefficient of 

state-owned enterprises is -0.0145, and its absolute value is 

smaller than that of private enterprises and is not significant, 

indicating that the provisions of the second round of central 

environmental protection supervision have a greater 

inhibitory effect on the performance of private environmental 

protection enterprises, but have no significant impact on the 

performance of state-owned environmental protection 

enterprises. This may be due to the relatively sufficient capital 

flow of state-owned environmental protection enterprises, 

which will not significantly reduce their investment in short-

term innovative technology research and development 

because of the increase in compliance costs brought by 

environmental protection inspectors. On the contrary, in the 

long run, state-owned environmental protection enterprises 

will have a competitive advantage in the environmental 

protection market due to their leading investment in 



 

376 

technology research and development.  

4.3.2. Heterogeneity analysis of enterprise size 
The Regulations on Central Ecological Environmental 

Protection Supervision may have different impacts on 

enterprises of different sizes. In order to test whether the 

impact of the regulations on enterprise performance of the 

second round of central environmental protection supervision 

is related to enterprise size, this paper further divides the 

sample of enterprises into large-scale enterprises and small-

scale enterprises and conducts heterogeneity analysis. The 

sample is divided according to the median enterprise size. 

When the enterprise asset size is larger than the median 

enterprise asset size during the sample period, the enterprise 

is classified as a large-scale enterprise; when the enterprise 

asset size is smaller than the median enterprise asset size 

during the sample period, the enterprise is classified as a 

small-scale enterprise. From the regression results of columns 

(3) and (4) in Table 8, we find that the CEPS coefficient of 

small enterprises is -0.0527, which is significant at the 5% 

level. The CEPS coefficient of a large-scale enterprise is -

0.0156, and its absolute value is smaller than that of a small-

scale enterprise and is significant at the level of 1%, 

indicating that the provisions of the second round of central 

environmental protection supervision have a greater 

inhibitory effect on the performance of small-scale 

environmental protection enterprises and a smaller inhibitory 

effect on the performance of large-scale environmental 

protection enterprises. This may be due to the Regulations 

will increase the cost of environmental regulation for 

enterprises, making it greater than or even far beyond the 

benefits of extensive development. Under the theoretical 

framework of the "forced back" effect of Porter's hypothesis, 

shareholders as clients will more actively encourage 

managers to carry out green innovation activities (Li 

Qingyuan and Xiao Zehua, 2020). Faced with the high-

pressure normalization of environmental protection 

inspectors, shareholders have a strong incentive to urge 

enterprises to carry out green technology research and 

development to reduce the potential risk of environmental 

violations; as agents of large enterprises, managers will 

inevitably strengthen the technological innovation of 

enterprises and actively carry out green and low-carbon 

transformation. However, small enterprises may have 

difficulties in carrying out green technology innovation 

activities under the background of normalized environmental 

supervision due to financial constraints and limited technical 

capability base. 

 

Table 6. Heterogeneity test of environmental protection enterprises in the Regulations 

Variable 

(1) (2) (3) (4) 

Private enterprise 
State-owned 

enterprise 
Small enterprise Big enterprise 

ROATTM ROATTM ROATTM ROATTM 

     

CEPS -0.0227** -0.0145 -0.0527** -0.0156*** 

 (0.0446) (0.3343) (0.0415) (0.0067) 

Controls YES YES YES YES 

Time fxed efect YES YES YES YES 

Industry fxed efect YES YES YES YES 

Clustering level industry industry industry industry 

Observations 4,936 1,329 3,772 3,737 

R-squared 0.209 0.235 0.201 0.235 

***, ** and * indicate signifcant levels at 1%, 5% and 10% respectively, and robust standard errors 

are reported in parentheses 

5. Conclusions and Policy 
Recommendations 

The purpose of this paper is to study the impact of the 

second round of central ecological environmental protection 

supervision on the performance of environmental protection 

enterprises and its mechanism. Semi-annual data of 

environmental protection listed companies and some non-

environmental protection listed companies in China's A-stock 

market from 2017 to 2022 are used to study the impact and 

mechanism of the Regulations on the Work of Central 

Ecological Environmental Protection Supervision on the 

performance of environmental protection enterprises by using 

the difference-difference method. The following conclusions 

can be drawn: First, the enactment of the Regulations has 

reduced the performance of environmental protection listed 

companies; second, the strengthening of regulatory effect and 

the reduction of innovation input are important mechanisms. 

Third, from the perspective of heterogeneity, the Regulation 

has a greater inhibitory effect on the performance of private 

environmental protection enterprises, but has no significant 

impact on the performance of state-owned environmental 

protection enterprises. The Regulation has less inhibitory 

effect on the performance of large-scale environmental 

protection enterprises and more inhibitory effect on the 

performance of small-scale environmental protection 

enterprises.  

According to the above conclusions and the current 

background of China's environmental governance, this paper 

can extend the following countermeasures and suggestions. 

First, in the context of the normalization of environmental 

protection "supervision of high pressure", the relevant local 

governments should constantly improve the mechanism of 

environmental supervision, the supervision of environmental 

governance of enterprises cannot be superficial in form, and 

it is necessary to go deep into the internal investigation of 

enterprises to investigate whether the industrial structure of 

enterprises is reasonable, whether the process is energy-

saving, and whether the technology research and development 



 

377 

is in place. Second, under the background of normalizing the 

high pressure of environmental protection inspectors and 

building a modern environmental governance system, it is 

necessary to strengthen the support of the environmental 

protection industry. We will strengthen independent 

innovation in key environmental protection technology 

products, intensify research and development of 

environmental protection technology products, promote the 

demonstration and application of major environmental 

protection technologies and equipment, and accelerate the 

improvement of technology and equipment in environmental 

protection industries. Third, improve the financial support for 

the operation and development of environmental protection 

enterprises, promote the rapid development of environmental 

protection enterprises in terms of market opening, technology 

and equipment, management and operation, and achieve high-

quality development.  

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