Environmental Regulation, regional finance development and enterprises' cross-regional capital flow

This paper analyzes both theoretically and practically the effects of environmental regulation on cross-regional capital flows. Specifically, this paper selects the New Environmental Protection Law as a natural experiment to examine the causal relationship between environmental regulation and enterprises' cross-regional capital flows spanning 2011 to 2022. The findings indicate that introducing the new Environmental Protection Law can inhibit enterprises' cross-regional capital flow by reducing regional finance development. Further analysis indicates that firms' nature and regional legal environment have heterogeneous effects. Specifically, state-owned enterprises are insensitive to environmental regulation, while non-state-owner enterprises have opposite ones due to severe supervision. An excellent legal environment plays a vital role in inhibiting effects.