The locational impact on corporate environmental strategies: evidence from river basin regulation in China

This study examines how locational differences in river-basin regulation reshape corporate environmental strategy choices. Using China’s 2008 Water Pollution Prevention and Control Plan for the Huaihe River Basin as a quasi-natural experiment, we compare firms in mainstream and tributary areas through a difference-in-differences approach. The results show that, after the implementation of the Plan, firms in mainstream areas, which were exposed to stronger regulatory pressure, significantly increased end-of-pipe treatment but reduced source-prevention-related activities relative to firms in tributary areas. This finding suggests a resource-constrained crowding-out effect, whereby compliance-oriented end-of-pipe treatment may crowd out source prevention. Robustness evidence based on external financing indicators and internal financial slack further supports this interpretation. Further analysis shows that local government environmental investment, marketization, and public environmental supervision moderate firms’ strategic responses to regulatory pressure. In addition, the environmental performance analysis shows that emissions increased among mainstream firms relative to tributary firms after the policy, indicating no corresponding improvement in emission outcomes.