Does environmental regulation boost corporate sustainability? From the perspective of environmental strategy

Concerning the impact of the Central Environmental Protection Inspector (CEPI), existing studies have mainly focused on the level of environmental protection. However, from the perspective of environmental strategy, firms may respond to regulations with a variety of business behaviors, which can influence corporate sustainability (CS). Therefore, we draw on data from Chinese A-share listed companies from 2011 to 2020 and apply a time-varying difference-in-differences method to examine the effect of CEPI on CS. Our findings demonstrate that CEPI has a positive effect on CS, which remains significant even after employing a series of robust measures. We further find that firms are more inclined to adopt proactive environmental strategies to address environmental pressures than reactive environmental strategies. Moreover, media reports and the top management teams characteristics have heterogeneous effects. Finally, the expanded analysis found that CEPI can improve the financial consequences of firms. Our study contributes to the elucidation of the nexus between environmental policies and corporate sustainability, thus offering valuable insights for the development of ecological accountability measures.