Environmental Regulation and Corporate Capital Allocation: How Low-Carbon Urban Policy Shapes Financialization and Competitive Resilience
Wenli Xu, Shuo Yang, Xiangxu Chang
Keywords:
Environmental Regulation; Corporate Financialization; Dual-Dimension Competitiveness; Resource Crowding-out; Cumulative Competitiveness Loss
Abstract:
In the context of the global low-carbon transition, elucidating the microeconomic implications of environmental regulation is crucial for effective policy design. This study leverages China’s phased implementation of the Low-Carbon City Pilot (LCCP) policy as a quasi-natural experiment to examine its causal impact on corporate asset allocation and competitive resilience. Employing a multi-period difference-in-differences (DID) design on a dataset of Chinese A-share listed firms (2003–2024), we document three key findings. First, the LCCP policy significantly induces corporate financialization, as firms increase financial asset holdings driven by profit-seeking and precautionary motives to buffer against regulatory uncertainty. Second, financialization exerts a divergent "Dual Effect" on firm competitiveness: while it enhances Carbon Productivity through compliance efforts, it erodes Total Factor Productivity (TFP) via a resource crowding-out mechanism. Third, heterogeneity analysis reveals a notable "Compliance Cost Effect": contrary to the resource-buffering hypothesis, firms possessing robust green technological endowments incur higher substantive transformation costs, thereby experiencing a more pronounced short-term erosion in TFP compared to non-innovating peers. Furthermore, in heavy-polluting industries, we identify an underlying "Intertemporal Crowding-out Effect," wherein excessive financial asset allocation significantly displaces green investment with a two-year lag. These findings underscore the unintended costs borne by "first-movers" and suggest that policymakers should implement precision-guided compensatory mechanisms to prevent active responders from falling into a competitiveness trap.
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 Environmental Regulation and Corporate Capital Allocation: How Low-Carbon Urban Policy Shapes Financialization and Competitive Resilience [PDF file] [Filesize: 941.83 KB]
 10.7441/joc.2026.02.09
Xu, W., Yang, S., & Chang, X. (2026). Environmental Regulation and Corporate Capital Allocation: How Low-Carbon Urban Policy Shapes Financialization and Competitive Resilience. Journal of Competitiveness 18(2), 233–262. https://doi.org/10.7441/joc.2026.02.09
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