Institutional pressure, ultimate ownership, and corporate carbon reduction engagement: Evidence from China

Abstract This paper investigates the relationship between institutional pressure and corporate carbon reduction engagement, as well as the moderating effect of ultimate ownership in China. Using a sample of 2511 firms that were listed on the Shanghai and Shenzhen Stock Exchanges in 2014 and 2015, we find that institutional pressure arising from government evaluation has a positive influence on corporate carbon reduction engagement. Moreover, the positive effect is stronger for non-state-owned enterprises (NSOEs) than for state-owned enterprises (SOEs). The subsequent analysis shows that carbon reduction engagement in NSOEs is positively associated with firms' access to state-owned bank loans. We further observe that there is a momentum of carbon reduction engagement due to institutional pressure. Our findings shed light on how institutional pressure influences firms' decision to engage in carbon reduction and the effectiveness of the carbon reduction policy in China.