Leveling Up Your Green Mojo: The Benefits of Beneficent Investment

We study corporate investment responses to changes in environmental regulations using a manually collected dataset on project investments in China. We categorize projects based on their societal benefits and show that local firms increase their environmental investment after their city is targeted for heightened environmental regulation, particularly through “beneficent investments” that directly spill benefits over to society at large. The effect is more pronounced in long-term projects, non-green sectors, and non-state-owned firms. Targeted cities experience intensified media coverage of environmental issues and greater career advancement opportunities for politicians tied to achieving environmental goals. Firms investing more in green projects receive additional financial incentives. By promoting local corporate environmental investment, targeted cities curb emissions, improve employment, grow green sectors, and attract high-quality firms. Local firms with greater environmental investments generate more green revenue and patents, enhance performance, and enjoy larger value gains. Our findings highlight how regulatory mechanisms can induce environmental investments that boost both corporate value and societal welfare.