Abstract: After the reform and opening up, China has achieved tremendous economic success. To explain this phenomenon, scholars have developed two different theories. The first is Fiscal Federalism Theory, and the second is Promotion Tournament Theory. Along with its high-speed economic growth, China faces the problem of dramatic environmental deterioration. To solve this problem, Organization Department of the CPC Central Committee promulgates a regulation about the performance evaluation of subnational government officials, which includes environmental protection indexes in it. What is the effect of the regulation? This paper makes an analysis of it. Using Difference-in-Differences method (DID) and panel data of Chinese listed companies over the period of 2010-2016, we find that the change of performance evaluation indexes of local officials will affect the behaviors of local officials, and then affect the operating activities of enterprises. Compared with low-polluting enterprises, debt financing in high-polluting enterprises decreases significantly after the regulation. We use a rich set of tests to show that the baseline results are robust to endogeneity and reverse causality. Then we test whether economic development level and regional pollution degree affect the regulation. Empirical results show that the regulation is more effective in developed provinces and in high-polluted provinces. This conclusion provides an empirical support for the Promotion Tournament Theory.

Key words: environmental protection, political promotion, financing, high-polluting enterprise