How Does Central Environmental Protection Inspection Affect Corporate ESG Performance: A Quasi-Natural Experiment from China

This study examines how the Central Environmental Protection Inspection (CEPI), a vertical oversight initiative launched in China in 2016, affects corporate ESG performance. While prior studies have documented a positive effect of CEPI on ESG performance, the underlying mechanisms and firm-specific contingencies remain largely unexplored. Treating CEPI as a quasi-natural experiment, we employ a multi-period difference-in-differences design with firm and year fixed effects, using panel data on A-share listed firms from 2011 to 2022. Supported by a battery of robustness checks, the results indicate a positive association between CEPI and corporate ESG performance. Our mediation analysis identifies three distinct transmission channels: government environmental subsidies, green technological innovation, and public environmental concern. Moreover, we find that CEPI’s impact is more pronounced among state-owned enterprises, heavily polluting firms, large firms, and manufacturing firms, and is amplified in highly marketized regions. These findings highlight the importance of vertical regulatory oversight in shaping corporate sustainability and offer practical implications for designing differentiated environmental policies.