Article
Environmental Regulation and Corporate Performance in Emerging Markets
In today’s technical and global era, pollution is a major issue that is affecting the lives of living beings on Earth. Environmental regulation creates a continuing tension between the social objective of pollution control and the private objective of firm performance. This systematic literature review synthesises theoretical and empirical research on the relationship between environmental regulation and corporate performance in emerging markets, with attention to India. The review integrates the neoclassical cost perspective, Porter's hypothesis, the natural-resource-based view, market valuation mechanisms, and institutional theories of enforcement. The evidence indicates that environmental regulation stimulates innovation and efficiency in some settings, but general competitiveness or profitability gains are not assumed. Indian evidence is heterogeneous. Murty and Kumar (2003) report higher technical efficiency among more compliant sugar firms, while Oak (2017) finds no significant average effect of the Perform, Achieve and Trade (PAT) scheme on energy intensity in the examined cement and pulp-and-paper firms. Pal, Mukhopadhyay and Bhagawan (2024), using matching-based difference-in-differences, find no statistically important PAT effect on energy efficiency but report a negative effect on firm value. Duflo et al. (2013) provide experimental evidence that changing third-party auditor incentives improved environmental reporting and reduced pollution in Gujarat. Gupta and Goldar (2005) show that environmental-performance information affect Indian stock prices. These evidences suggest that instrument design, enforcement credibility, firm capabilities, industry characteristics, adjustment costs, and the selected performance indicator are central to understanding regulatory effects. The review identifies important gaps in causal identification, measurement of realised regulatory stringency, coverage of small and unlisted firms, and analysis of mechanisms linking regulation to innovation, investment, productivity and valuation.