The cost of environmental inequality: Evidence from offsite investment

Abstract

The unequal distribution of resources and unjust utilization of the environment not only imperil the global ecological equilibrium but also undermine the sustainable development of the global economy. By delving into enterprises' offsite investment behavior amidst environmental inequality, insights into their environmental stewardship in the global arena can be gleaned. Drawing on data from Chinese non-financial enterprises spanning 2007–2020, our findings underscore that environmental inequality spurs offsite investments by enterprises, with capital flows predominantly directed towards other provinces rather than remaining localized. Mechanism analysis from economic perspectives reveals that environmental inequality adversely affects corporate income growth, and the resulting environmental governance pressure transfers to enterprises, reducing corporate competitiveness and prompting capital flight. Additionally, mechanism exploration from strategic perspectives reveals that environmental inequality leads to higher corporate financing costs, increased default risks, and a heightened risk of stock price collapse in the capital market. The financial pressure of addressing environmental inequality also transfers to enterprises within the jurisdiction, compelling them to seek sustainable development through offsite investment. Our analysis of heterogeneity indicates that the enhancing impact of environmental inequality is more pronounced among firms that receive low subsidies, are situated in the central and eastern regions of the country, contend with sluggish markets, possess non-state attributes, exhibit low technological advancement, and have high pollution intensity. Moreover, environmental inequality influences the industrial composition of the destination where capital flows. This study provides novel insights into evaluating the economic consequences of environmental equity and corporate capital management, furnishing a scholarly basis for advancing environmentally sustainable development.