Environmental Regulation and Firms’ Cross-Regional Investment: Evidence from China’s Air Ten Policy

Using panel data on Chinese A-share listed firms from 2002 to 2024, this study examines the impact of the Air Pollution Prevention and Control Action Plan (the Air Ten policy) on firms’ cross-regional investment. We identify the policy effect using a multi-period difference-in-differences (DID) model with firm and year fixed effects. The findings remain robust across a series of tests, including the parallel trend test, propensity score matching combined with DID (PSM-DID), placebo tests, alternative variable specifications, additional control variables, and high-dimensional fixed effects. The results show that the Air Ten policy significantly promotes firms’ cross-regional investment. Mechanism analyses suggest three potential channels through which the policy operates: enhancing firms’ green innovation capability, improving human capital quality, and facilitating regional industrial upgrading. The resulting industrial upgrading creates a more favorable external environment for firms to expand their investment activities. Heterogeneity analyses show that the positive effect is more pronounced among firms with higher R&D intensity, weaker internal control, and those located in eastern China. We find no evidence that the policy-induced cross-regional investment is driven by pollution relocation. Instead, the results suggest that firms’ cross-regional expansion is more likely to reflect a capability-driven mechanism than regulatory arbitrage. This finding is broadly consistent with the pollution halo perspective and provides further support for the Porter hypothesis. Overall, this study offers new insights into how environmental regulation reshapes corporate capital allocation and geographic expansion strategies.