Political connection and water pollution: New evidence from Chinese listed firms

We analyze the data of 689 Chinese listed firms between 1999 and 2010 to study the relationship between firms' political connections and their pollution emissions. We find that, ceteris paribus, a polluting firm with politically connected top managers discharges about 25% more chemical oxygen demand (COD) per 10,000 RMB (about 1,500 USD) worth of total output. The impact of political connections on COD emissions gradually fades out with the departure of politically connected top managers. However, political connections do not affect firms' emissions of unregulated water pollutants or air pollutants that receive high levels of public attention. In addition, we find evidence that polluting firms may leave wastewater treatment units idle, which lessens treatment costs and thus raises pollution emissions. The findings of this study would help advance discussion about managing water pollution and designing effective environmental regulations under a command-and-control policy schema in developing countries.