Environmental regulation and environmental information disclosure: A legitimacy and stakeholder perspective from China

Using China's 2015 Environmental Protection Law (EPL) as a quasi-natural experiment, this paper examines how environmental regulation affects the disclosure behavior of heavily polluting enterprises. Based on a sample of Chinese listed companies from 2011 to 2018, we find that heavily polluting firms significantly improve their environmental information disclosure (EID) quality following the EPL's implementation. This average effect, however, conceals substantial heterogeneity that reveals the mechanisms at work. The disclosure response is concentrated among firms lacking institutional protection resources: non-politically connected firms and those in competitive industries exhibit the strongest improvements, while politically connected firms show neither increased EID nor increased environmental penalties—evidence that political ties sever the link between regulatory pressure and disclosure behavior rather than merely dampening it. On the stakeholder side, firms with greater simultaneous dependence on creditors, institutional investors, and suppliers respond more strongly to the EPL, and this mechanism operates through concrete resource consequences: low-EID firms face measurable contractions in bank lending and trade credit, while high-EID firms attract increased institutional ownership. When legitimacy pressure and stakeholder pressure coincide, the disclosure response substantially exceeds what either mechanism generates independently. These findings advance the environmental disclosure literature by specifying the boundary conditions of the legitimacy mechanism in transition economies, introducing a resource dependence intensity perspective on stakeholder theory, and documenting a previously unreported interaction between the two mechanisms.