امتیازات سرمایه گذاری مستقیم خارجی و عوارض زیست محیطی در چین
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : International Review of Financial Analysis, , In Press, Corrected Proof, Available online 12 December 2013
We investigate how foreign involvement in the ownership of privately held entrepreneurial firms affects pollution fees levied by national and provincial governments in China (environmental levies). Because provincial governments have considerable control over environmental policies, differences in environmental levies provide a good proxy for measuring provincial concessions made for the purpose of attracting investment, and particularly foreign direct investment (FDI). Furthermore, because we consider privately held entrepreneurial firms rather than publically listed firms, foreign involvement in ownership provides a good proxy for FDI. We find that firms with foreign ownership do indeed pay lower environmental levies, which indicates that concessions are made to attract FDI to China. However, these concessions are conditional on the level of development of the province offering them, with better developed provinces providing fewer concessions for FDI. We also find that greater concessions are made to foreign joint venture firms having a foreign ownership stake of less than or equal to 50%.
Private enterprise has been the engine of economic growth around the world in both developed and emerging economies (Ball & Shivakumar, 2005). Within the private sector, the role played by privately held entrepreneurial firms is especially crucial. For example, in China such entrepreneurial firms account for over 60% of GDP and 80% of employment (Chen, Ding, & Wu, 2013). Entrepreneurial firms are relatively small, young, and growing firms that take risks to explore business opportunities (Markman and Baron, 2002 and Shane, 2000). As such, these firms often face capital constraints, especially in emerging markets such as China, because they have limited access to local capital markets. To alleviate capital constraints, some domestic firms attract foreign capital to found joint ventures or wholly foreign-owned enterprises, so foreign direct investment (FDI) can be an important source of entrepreneurial financing. We investigate how foreign capital involvement in Chinese privately held entrepreneurial firms affects provincial concessions in the form of reduced environmental levies.4 FDI can be an important source of capital for promoting economic development and entrepreneurial activities. Not only does it provide a significant economic impact on countries and firms that receive investment (Sun, 1998), but also affects the investors of FDI companies (Ding & Sun, 1997). From the perspective of foreign firms, the decision to invest is determined by the risk-adjusted return on their investment, which in turn is determined by both firm and host-country or regional characteristics at the time of the investment decision. In particular, both country and location-specific characteristics may directly or indirectly influence the decision to invest. For instance, multinational corporations (MNCs) are mainly attracted by strong fundamentals such as market size, availability of skilled labor, and availability of infrastructure (Blomström and Kokko, 2003 and Blonigen, 2005). Using a detailed analysis of data from 164 countries, Buchanan, Le, and Rishi (2012) find that a country's institutional environment can strongly affect FDI. However, apart from country-level characteristics, which are generally systematic in nature and are usually beyond the control of individual firms, incentives and concessions provided by host country governments also play an important role in affecting a foreign firm's decision to invest in a country or in a specific location (Blomström & Kokko, 2003). The United Nations Conference on Trade and Development (1996) (UNCTAD hereafter) reports various incentives and concessions that host countries might offer to attract FDI. These concessions come in many forms such as tax incentives, subsidies, grants, and preferential loans. One of the most widely studied aspects of host country concessions given to MNCs is tax incentives. Rather than imposing encompassing low statutory tax rates, it is often more effective for host country governments to offer selective tax incentives, which have a smaller negative impact on fiscal revenue. Selective tax incentives may also serve as a signal of the host country's commitment to attracting FDI, and are often easier to implement than a general reform of the tax system (Bond & Samuelson, 1986). Even regional differences in tax incentives can play an important role in affecting a foreign firm's decision to invest in a particular location. For instance, Coughlin, Terza, and Arromdee (1991) contend that higher state taxes deter FDI in the U.S. Similarly, Hines (1996) reports that state taxes influence the pattern of foreign investment in the U.S. Most of the academic research on concessions and incentives focus on country-level characteristics rather than regional characteristics. There are two main drawbacks associated with this broader country-level focus: First, do firms actually realize tax concessions associated with national incentives ex post? Second, do regional incentives amplify or offset national concessions? We address both of these concerns. We use the ex post fees levied on environmental pollution (environmental levies) as a firm-level proxy for concessions to test whether foreign capital investment actually results in lower levies. Furthermore, by considering provincial effects for the single country China, we avoid the usual problems that affect cross-country studies related to decomposing natural competitive advantages such as political, cultural, and other institutional effects, accounting standards, and other country-level effects, from concessions, as well as the difficulty of simply measuring concessions consistently across countries. While there are clearly differences among provinces, these effects are much less pronounced than they are among different countries. Thus far, we have used the term FDI loosely. Before proceeding further, it is useful to define it formally. UNCTAD defines FDI as “investment made to acquire lasting interest in enterprises operating outside of the economy of the investor.” FDI is different from usual portfolio capital inflows (generally known as “hot” money) in the sense that it is a “direct investment” in the local firms with the investors intending to gain an active voice and some degree of control. We consider private firms with no liquid secondary equity markets, so these firms are prime examples of direct investment. We predict that firms with foreign capital involvement in China should enjoy favorable treatment from local, provincial governments in the form of lower environmental levies. However, we also expect that entrepreneurial firms in better developed provinces have less need for foreign capital, and therefore concessions in the form of lower environmental levies provided to encourage foreign involvement should be lower for better developed provinces. In other words, the interaction between foreign involvement and provincial development should positively affect environmental levies. We also anticipate that provincial governments will treat FDI investments more favorably when they are made jointly with local investors. These joint ventures can provide a number of benefits beyond investment and employment opportunities, such as technology and knowledge transfer, and allow local firms to participate in future growth opportunities. We test our hypotheses by using an official source of data provided by the National Bureau of Statistics of China. One important source of value of this data set is that it provides proprietary information for a large set of privately held entrepreneurial firms that would otherwise be difficult to obtain.5 Our results confirm that environmental levies are one aspect of concessions provinces make to attract FDI to China. In general, we find that foreign investment reduces the environmental levies charged to firms. While concessions generally increase with the ownership percentage, other factors might also be important for firms in which foreign ownership is dominant. We control for a number of provincial and firm specific factors that could also affect environmental levies, and our findings are consistent. We also find that the degree of provincial development mitigates the concessions given to foreign ownership. Better developed provinces tend to provide fewer concessions to firms with foreign ownership. These regional differences are consistent with prior studies documenting the existence of a domestic firm pollution haven in China (Di, 2007, Jiang et al., 2013 and Lu et al., 2012). On the other hand, Dean, Lovely, and Wang (2009) show that at least some foreign investors are attracted to Chinese provinces with weak environmental standards; our finding of the existence of environmental levy concessions provides one explanation to such behavior. It is worth noting that recent studies present mixed evidence on the impact of foreign firms on environmental pollution. Jiang et al. (in press) show that foreign firms in China tend to pollute less compared to state-owned enterprises, ceteris paribus, and Kirkulak, Qiu, and Yin (2011) find that the presence of FDI in China has no negative impact on the air quality. In contrast, Cole, Elliott, and Zhang (2011) find that foreign firms have a detrimental effect on environmental emissions in China in several cases, such as petroleum-like matter, waste gas, and SO2. We find that foreign firms still receive concessions even after taking into consideration the possibility that they may pollute the environment less intensively than local firms. Our results provide practical guidance to foreign firms that are considering making a direct investment in China. The decision about where to locate in China is complex, and provincial differences in environmental regulation and enforcement add to this complexity. Although our findings suggest that FDI is more likely to flow into regions with higher concessions, Dong and Torgler (2010) show that less developed provinces in China are also more corrupt, which deters foreign investors from entering these regions. As a result, the location choice requires a systematic consideration of both benefits and costs. Our findings also have policy implications for China. One aspect of the decentralization of environmental regulations is that provincial governments have a greater ability to provide concessions to foreign-owned firms for the purposes of attracting FDI, which could give foreign-owned firms a competitive advantage over purely domestic firms. This problem is exacerbated by the incentive system and opportunities for advancement associated with economic growth, particularly since pollution is largely a public (national and even international) cost. Together, the opportunity and incentive could lead provincial governments to compete with each other to weaken environmental standards for the purpose of attracting FDI. As such, there could be a role for the central government to limit the opportunity (by developing more comprehensive national standards) or the incentive (through political reform). The remainder of this article is organized as follows. Section 2 examines the previous literature and develops hypotheses. Section 3 describes the data and methodology used to investigate our research questions. Section 4 discusses and analyzes the empirical results. Section 5 concludes and considers implications of the findings.
نتیجه گیری انگلیسی
Foreign direct investment (FDI) is increasingly being recognized as an important driver of economic growth in many developing countries. FDI not only infuses much needed capital but also transfers technology and other managerial skills. Recognizing its many potential benefits, countries often strive to create an environment conducive to FDI and provide various concessions to foreign capital providers. Nonetheless, the efficacy of incentives as a determinant for attracting FDI is still much debated. Cross-country studies of tax incentives are not only plagued with the complexities of different tax systems but are also influenced by unobserved country characteristics, which can muddle the results. Focusing on regions within a single country having different economic growth and development provides enough heterogeneity for meaningful analysis and avoids the usual pitfalls found in cross-country analysis. We also avoid concerns associated with volatile portfolio capital flows by using a unique set of private entrepreneurial firms. We consider FDI incentives from the perspective of foreign capital providers and investigate the relation between foreign involvement in firm ownership and concessions provided to private firms in different regions of China with different levels of economic development. In other words, we directly attempt to observe whether the perceived benefits of investing in a country that seemingly offers concessions actually translate into realized benefits. Differences in fees levied on pollution emissions (environmental levies) provide a good proxy for measuring provincial concessions made for the purpose of attracting investment. We find that firms with greater foreign ownership pay lower environmental levies, which indicates that concessions are made to attract FDI to China, and that firms actually benefit from foreign ownership involvement. Needless to say, providers of foreign capital benefit as well. Furthermore, this reduction in levies is greater for joint venture firms that have ownership stakes of less than or equal to 50%. However, these concessions are conditional on the level of development of the province offering them, with better developed provinces providing fewer concessions for FDI. This finding indirectly contributes to the existing negotiation theories that involve MNCs and host governments: Countries or regions that possess stronger fundamentals have better negotiation power. One limitation of our study is that we cannot directly control for firm level pollution emissions, although we do control for other factors related to pollution. Recent studies have shown that the market rewards firms that take efforts to mitigate environmental impact (Aggarwal & Dow, 2012). Further research may examine the market response to changes in environmental levies. Environmental regulation is one of the many factors to consider when investors make international investment. Further studies could also explore how legal, ethical, cultural, and socio-political institutions affect the relation between environmental regulations and international investment and FDI (Cressy, Cumming, & Mallin, 2012), particularly as they relate to environmental levies in China.