Boon or Bane? The Impact of the New Environmental Protection Law on Corporate R&D Manipulation: Evidence from China

Environmental legislation has been regarded as an effective tool for environmental protection, but how it affects corporate R&D manipulation is unknown. This study takes the implementation of China’s New Environmental Protection Law (NEPL) as a quasi-natural experiment to examine the impact of environmental legislation on corporate R&D manipulation. On a sample of Chinese listed industrial enterprises from 2012 to 2023, our difference-in-differences results find a significant increase in R&D manipulation for enterprises after the implementation of the NEPL. Further analysis shows that the implementation of the NEPL tightens enterprises’ financial situation by increasing environmental investment and governance costs, subjecting them to stricter scrutiny and intensifying credit constraints, which induces enterprises to manipulate R&D for additional economic resources. Heterogeneity analysis finds that enterprises with high financing constraints, low industry competition, and high regional environmental attention are more likely to implement R&D manipulation when facing NEPL. The findings provide solid evidence for further optimizing environmental policies and achieving the coordinated development of ecological protection and economic growth.