The digital mist under the green lighthouse: the crowding-out effect of local digital economy policies on corporate environmental performance

This study examines the impact of Local Digital Economy Policies (LDEPs) intensity on Corporate Environmental Performance (CEP) using a sample of Chinese A-share listed companies from 2009 to 2022. We develop a theoretical framework and provide robust empirical evidence showing that heightened LDEPs intensity significantly inhibits corporate green investment and leads to a notable decline in CEP, revealing a distinct ‘crowding-out effect’. Mechanism tests indicate that LDEPs intensity curbs corporate spending on environmental governance, green innovation, and end-of-pipe treatment. Heterogeneity analysis reveals that in terms of corporate internal characteristics, the effect is stronger in firms with higher financing constraints but weaker in larger enterprises. Regarding external environments, higher public environmental awareness, ESG fund preference and institutional shareholding mitigate the crowding-out effect. These findings contribute to the literature on the digital economy and sustainable development, offering policy insights for harmonizing digital transformation with green growth.