China Policy Journal Volume 1, Number 1, Fall 2018 | Page 125

China Policy Journal
dioxide) and NO 2
(nitrogen dioxide),
and water quality measured by TSS (total
suspended solids) and regulatory
compliance percentage. Their pollution
monitoring, inspection, and environmental
information systems were well
developed and well managed, primarily
because of their long-standing experience
with pollution registration
requirements and China’s pollution
charge system. 1
Table 3 shows that 36.7% of the
firms in the sample were rated by the
Green Watch program. The majority of
the firms were assigned blue (60.38%)
and yellow (22.37%); only a few earned
the best (green) rating (2.96 %) or the
worst (black—2.96%). The rating distributions
were similar across cities, with
the majority of firms rated blue and yellow,
and very few green and black.
5. Multivariate Analysis
The pollution data collected for
this study were sufficiently detailed
to permit assessment of
Green Watch for both water and air
pollution, measured by intensity and effluent
concentration. Pollution intensity
was calculated as the total emissions
divided by the gross value of output.
We use TSS, chemical oxygen demand
(COD), and generated waste water to
measure water pollution, and sulfur dioxide
(SO 2
), waste gas, dust, and smoke
to measure air pollution.
The dependent variables in our
multivariate analyses are changes in
pollution intensity and concentration
for different pollutants. Let pollution
intensity be specified as Y it
for firm i in
year t. The dependent variable for the
intensity equation is the first difference,
Y i,t
− Y i,t-1
. The reduced-form fixed effects
model for Y i,t
− Y i,t-1
is
(1) Y it
−Y it-1
= β 0 + α 1 F it + α 2 C it + α 3 R it
+ β 1
t + µ i
+ ε it.
where F it
and C it
are vectors of characteristics
of the firm and the city; R it
is
a vector that incorporates both rating
status (rated or unrated) and color-category
assignments for rated firms; t is
a time trend; µ i
represents unobserved
firm effects ;
and ε it
is a random error
term. Specifically, firm characteristics
in F it
include the number of establishment
years, firm size (e.g., large, medium,
and small), ownership structure
(e.g., state-owned enterprise, collectively
owned enterprise, private companies,
foreign companies, and companies with
limited shares), and industry sectors
(e.g., chemicals, fiber/rubber/plastic,
food and beverage, machinery manufacture,
medical, mining, pulp and paper,
smelting, textile and leather, transportation,
and utilities). City dummies
are incorporated in C it
to reflect differences
between cities. Endogeneity is not
a serious problem in this case, because
ratings released in year t were based on
multi-dimensional performance observations
during year t – 1.
If sample firms were randomly assigned
to rated and unrated groups, we would
not expect a statistical difference in intergroup
pollution at t −1, before the
first Green Watch disclosure in period t.
1 For discussion of firm-level pollution data in China, see Wang and Wheeler (2006).
122