Political uncertainty and corporate sustainability: how does official turnover affect environmental investment

Abstract

ABSTRACT In response to the growing interest in corporate environmental sustainability practices, this study examines the impact on corporate environmental investment (EI) of the political uncertainty caused by the turnover in government officials. Based on a large sample of 13,321 Chinese listed firms during the period 2000–2017, the study reveals that political uncertainty causes firms to reduce their environmental investment. In examining the moderating influences of political connection and the institutional environment on such a response, we find that the negative relationship between political uncertainty and environmental investment is strengthened when firms have strong political connection, but is weakened in a more developed institutional environment. The results of the study are robust to a variety of sensitivity tests. We also investigate the importance of industry differences in terms of the role of political uncertainty, but find this to be insignificant across different firm ownership and regional location types. The findings of this study extend the current understanding of how and why the sustainable behavior of enterprises varies depending on the effect of political factors, particularly in the Chinese context, and offer important implications for enterprises in their quest to achieve sustainable development.