Different types of environmental regulation and digital transformation: evidence from China’s A-share listed industrial firms

Abstract

Using panel data on Chinese A-share listed industrial firms from 2014 to 2023, this study examines the nonlinear associations between command-and-control environmental regulation, market-incentive environmental regulation, and firms’ digital transformation. The results show a U-shaped relationship for command-and-control regulation, with a turning point of 0.433. Market-incentive regulation exhibits an inverted U-shaped relationship, with a turning point of 10.415. These patterns remain broadly consistent across lagged, restricted-sample, province-clustered, outlier, and alternative-measure specifications. Heterogeneity analysis shows that the command-and-control relationship is concentrated among lightly polluting firms, whereas the market-incentive relationship appears in both pollution groups. Further analysis points to high-quality green innovation as a potential channel. An alternative measure based on digital-related intangible assets produces similar coefficient signs but weaker statistical significance. The findings indicate that this relationship depends on regulatory type, intensity, and firm context.