Abstract Property rights theory holds that stronger ownership protection stimulates firm investment, yet whether such investment supports environmentally beneficial uses remains unclear. We develop a property rights perspective on corporate pollution control, arguing that stronger ownership protection promotes cleaner production when complementary institutional conditions make environmental upgrading both strategically valuable and financially feasible. Exploiting China's 2007 Property Law as a quasi‐natural experiment, we find that firms more exposed to the reform significantly reduce toxic emissions after the Law . Importantly, this emission‐reducing effect is concentrated among firms operating under stronger external monitoring and among financially constrained firms that experience improved credit access. Mechanism tests show that green innovation and abatement upgrading partially explain the emission reductions. These findings extend property rights theory by showing that ownership protection does not automatically lead to cleaner production; its sustainability effects depend on monitoring and financing conditions that shape firms' strategic investment choices.
Chen et al. (Sun,) studied this question.