Environmental Engagement: An Effective Way in Mitigation of Firms' Litigation Risks in China

The increasing incidence of environmental disasters has necessitated stricter government environmental legislation and heightened firms' environment-related litigation risks. Firms with environmental engagements receive favourable treatment from the government as their efforts align with government environmental campaigns and comply with government initiatives. In this study, we examine the impact of firms' environmental engagement on their litigation risks in China. Using a sample of listed firms from 2006 to 2019, we find that firms with environmental engagement are less likely to experience lawsuits. This result is robust across alternative estimation methods. The main results are also more pronounced in non-state-owned enterprises (non-SOEs), firms from high-pollution industries, located in high-pollution provinces and low-trust provinces. Overall, this study provides evidence from a new perspective on how firms can mitigate their litigation costs through environmental engagement.<p></p>