Effect of mandatory cleaner production audits on manufacturing firms' environmental efficiency in China: Renovation or innovation?

Technological innovation is an important solution that can help improve environmental efficiency. However, the role of technological renovation in enhancing environmental efficiency has been ignored. This study provided initial evidence of the effects of cleaner production audits in China on manufacturing firms' environmental efficiency, which was measured by the emissions of sulfur dioxide and chemical oxygen demand per total output. Cleaner production audits were used as exogenous shocks. Their impact was estimated using the staggered difference-in-difference method combined with samples of ever-treated or never-treated firms using propensity score matching. The findings showed that firms that conducted cleaner production audits (vs. those that did not) experienced 4.7% and 11.9% reductions in the emission intensities of sulfur dioxide and chemical oxygen demand, respectively. Cleaner production audit implementation significantly improved firms' environmental efficiency. Additionally, a heterogeneous analysis showed that non-heavy polluters, small and medium-sized firms, and non-state-owned firms demonstrated the most improvement in environmental efficiency. Finally, the mechanism analysis results showed that firms' technological renovation in the production process is the main solution for improving environmental efficiency. This is a feasible and cost-effective way of reducing resource consumption and pollutant emissions. Accordingly, a cleaner production audit plan for different countries should be formulated with a focus on technological renovation in the production process. It should entail clean-cut incentives to stimulate firms to perform technological innovation, thereby continuously improving firms' environmental efficiency. This study sheds light on the environmental impact of cleaner production audits and regulated firms' choices between technological renovation and innovation. [Display omitted] • Effects of cleaner production audits on firms in China are investigated. • Cleaner production audits significantly improve firms' environmental efficiency. • Technological renovation in production processes improves environmental efficiency. • It is a cost-effective way to reduce resource consumption and pollutant emissions. [ABSTRACT FROM AUTHOR]