ABSTRACT Analyzing a sample of Chinese firms spanning from 2007 to 2022, we yield the following findings: (1) Local environmental regulations have a negative impact on short‐term firm financial performance, and this impact can be weakened by corporate bribery. However, local environmental regulations enhance firm long‐term financial performance after initiatives by the central government to rectify issues within the “top‐down” management system; (2) Further analysis indicates that the effects of bribery on firm financial performance depend on the focus of the central government. Additionally, bribery undermines firm's research and development investment, though this investment is beneficial for long‐term development. Our research not only provides suggestions for firms in emerging economies on how to respond to environmental regulations but also provides insights for governments about how to achieve a “win‐win” situation through proper environmental regulations.
Cheng et al. (Mon,) studied this question.