The Impact of Environmental Pollution Liability Insurance on Firms’ Green Total Factor Productivity: Evidence from China

Abstract

Improving green total factor productivity (GTFP) is crucial for firms to enhance competitiveness and sustainable development capacity. Environmental pollution liability insurance (EPLI) facilitates firms better manage environmental risks and encourages firms to enhance GTFP. This study examines the impact of EPLI coverage on GTFP using data from Chinese heavy-polluting firms. Results show that EPLI enhances GTFP, with the effect persisting over time. Further mechanisms study suggests that EPLI enhances GTFP through external stakeholders’ pressure and internal incentive mechanisms. Finally, the magnitude of EPLI’s impact depends on the quality of firms’ human capital.