Ecological governance and corporate carbon exposure: Quasi-experimental evidence from a staggered judicial reform

This paper investigates whether strengthened ecological legal enforcement can curb firm-level carbon risk. Exploiting the staggered establishment of Intermediate Environmental Courts across Chinese cities as an institutional shock, we implement a difference-in-differences design on a panel of A-share listed firms from 2011 to 2023. The results indicate that enhanced ecological legal enforcement leads to a statistically and economically significant decline in corporate carbon risk. Additional analyses suggest three adjustment channels, firms increasingly embed environmental objectives into corporate strategy, expand substantive green innovation activities, and upgrade internal governance by bringing in executives with environmental expertise. The risk-reducing effect is further reinforced in locations with stronger public environmental salience and greater local governmental emphasis on ecological issues, implying complementarity between formal judicial institutions and the surrounding governance environment. Cross-sectional evidence shows larger impacts among heavily polluting firms and technology-intensive firms. The findings underscore the role of judicial capacity building in shaping corporate decarbonization behavior and mitigating climate-related exposure at the micro level.