When Green Certification Pays Off: Financial Returns from Environmental Regulation Compliance

This study uses data from A-share listed companies in China between 2010 and 2023 and employs a multi-period difference-in-differences model to empirically examine the impact of green factory certification under China’s green manufacturing demonstration program on corporate financial performance. The results show that after obtaining the green factory certification, firms exhibit a significant improvement in financial performance. Mechanism tests reveal that green factory certification incentivizes corporate green innovation, which emphasizes the adoption of new technologies and concepts to achieve efficient resource utilization and effective pollution reduction, thereby generating economic benefits. Additionally, green factory certification enhances firms’ external green image by attracting green investors, leading to market recognition and increased market share, which further improves financial performance. Heterogeneous analyses indicate that the positive effects of green factory certification are stronger for firms with multiple certifications, no environmental violations, stronger public environmental awareness in the region, and firms in heavily polluting industries. Further analysis shows that green factory certification mitigates the negative impact of extreme weather on corporate financial performance. This study provides micro-level empirical evidence on the determinants of corporate financial performance and offers policy implications for the implementation of green manufacturing demonstration projects and voluntary environmental regulation policies.