The Impact of Command-and-Control Environmental Regulations on Firms’ Maturity Mismatch: Evidence from Chinese 2015 New Environmental Protection Law

Abstract

Amid increasingly stringent environmental governance, firms’ investment and financing maturity structure directly shapes liquidity risk exposure and capital chain resilience, thereby influencing the green transition and high-quality development. Exploiting the 2015 revision of China’s New Environmental Protection Law as a quasi-natural experiment and using panel data on A-share manufacturing firms from 2009 to 2021, this study implements a difference-in-differences approach to identify the effect of command-and-control environmental regulation on debt–investment maturity mismatch. Empirical results show that after China’s New Environmental Protection Law, maturity mismatch increases significantly among heavily polluting firms, which indicates a materially higher reliance on short-term funding to bridge long-horizon investment and therefore greater rollover and liquidity risk. Mechanism analyses show two channels, namely an increase in long-term investment and a tightening of credit, reflecting compliance-driven capital expenditures together with a contraction in long-maturity credit supply, which pushes firms toward short-term borrowing for longhorizon projects and raises rollover and liquidity risk. Heterogeneity analyses show that the mismatch effect is concentrated among private firms, younger firms, and larger firms, while no statistically significant adjustment is detected for state-owned or foreign-invested firms. These findings demonstrate that command-and-control environmental regulation strengthens compliance but may inadvertently exacerbate firms’ financial fragility through maturity mismatch. Author recommend establishing a coordination mechanism between enforcement and green finance by setting up earmarked credit lines, issuing green bonds, and providing government-backed guarantees to expand medium and long-term funding for pollutionintensive sectors, and by offering targeted support to private firms, early-stage growth firms, and entities with heavier financial burdens that are more severely affected.