“A Double-Edged Sword” for Sustainability: How Environmental Administrative Punishments Impact Corporate Employment

Environmental administrative punishments are widely employed to deter corporate environmental misconduct while serving the overarching objective of sustainable development, yet their broader social impacts remain understudied. Using data on Shanghai- and Shenzhen-listed non-financial firms from 2007 to 2022 for examination, this study finds that such environmental administrative punishments reduce corporate employment growth by exacerbating firms’ internal and external financial constraints. Instrumental variable, propensity score matching, and DID approaches are used to address endogeneity concerns in this paper. Cross-sectional results indicate that the negative effect is mitigated by state ownership and local labor protection, but amplified in heavily polluting industries and by a high level of corporate internationalization. Further, although penalized firms exhibit lower employment growth, they optimize human capital structure to enhance green innovation, capturing the double-edged sword effect of environmental administrative punishments. These findings reveal the economic and social consequences of environmental punishments and provide policy implications for advancing effective environmental regulations and high-quality employment development.