Executive Accountability Systems and the Environmental Violations of State-Owned Enterprises in China

TL;DR

This paper investigates how China's ASIOI accountability system reduces environmental violations in state-owned enterprises by strengthening controls, boosting green investments, and fostering innovation, especially in less regulated firms.

Contribution

It provides empirical evidence that accountability mechanisms can improve environmental compliance and promote green transformation in politically embedded SOEs.

Findings

ASIOI significantly reduces SOE environmental misconduct.

Mechanisms include improved controls, green investment, and innovation.

Greater effects observed in less regulated SOEs.

Abstract

Executive accountability is increasingly viewed as a critical mechanism for improving corporate environmental performance, especially in state-owned enterprises (SOEs) that dominate high-emission sectors such as energy, infrastructure, and heavy industry. This study examines whether China's Accountability System for Irregular Operations and Investments (ASIOI) curbs environmental violations in SOEs. Exploiting the staggered regional implementation of ASIOI as a quasi-natural experiment, we find that the policy leads to a significant reduction in SOE environmental misconduct. Drawing on a criminology-based cost-benefit framework, we identify three underlying mechanisms: strengthened internal controls, increased green investment, and enhanced green innovation. Further analyses reveal that the deterrent effect of ASIOI is more pronounced in SOEs that exhibit weaker regulatory oversight and stronger incentives to commit violations. By focusing on politically embedded SOEs, this study shows how accountability mechanisms can catalyze proactive green transformation, enhancing the strategic role of public governance in sustainability transitions.