Corporate environmental performance matters: an event study of the ecological and environmental code

Using an event-study approach, we examine the stock market response to the enactment of the Ecological and Environmental Code of the People’s Republic of China on 12 March 2026. For the full sample, we find a significant negative average market reaction to the enactment of the Code, reflecting market-wide concerns regarding rising compliance costs and regulatory pressure. Underlying this average negative reaction is a systematic screening effect: firms with strong environmental performance experience less negative stock returns, while those engaging in greenwashing are penalized more heavily. This screening effect is more pronounced among firms in environmentally sensitive industries, those included on the key pollution supervisory list, and firms that disclose quantitative information about adverse environmental impacts or issue standalone environmental reports.