Does Environmental Policy Help Green Industry? Evidence from China’s Promotion of Municipal Solid Waste Sorting

Abstract

As municipal solid waste severely threatens human health and the ecological environment, since 2019, China has started to fully practice MSW sorting in all prefecture-level cities. In this paper, we apply the event study and difference-in-difference methods to investigate how China’s green policy of promoting MSW sorting influences listed waste sorting companies from the perspective of investors’ short-term and long-term reactions. This paper finds that investors are not sensitive to the introduction of MSW sorting in the short term, the new environmental policy does not relieve the financing constraints of related enterprises in the long run, and the financing constraints of private enterprises are stricter than those of state-owned enterprises. These findings indicate that China’s current encouragement of garbage sorting is not efficient enough as it has not brought benefits to the waste classification industry yet. More measures need to be taken to eliminate uncertainties in urban waste sorting. Our paper enriches the research on China’s waste sorting practices and provides new evidence of the effects of environmental policy on related firms from the perspective of green industry.