Environmental compliance and human capital: Evidence from Chinese industrial firms

• Internal human capital pushes firms to have better environmental performance.
• External human capital pulls firms to comply with environmental regulations.
• We take into account the endogeneity of both external and internal human capital.
• Regulatory pressure could differ across cities due to different educational degree of population.

By using a unique cross-sectional dataset of Chinese industrial firms, this paper investigates the external and internal effects of human capital on firms’ environmental performance. The result shows that firms have better environmental compliance because they are ‘pushed’ into compliance by the internal driver of human capital and ‘pulled’ to be environmental friendly by the external force of social human capital stock. This finding is robust when we take into account the possible endogeneity of human capital. In addition, evidence from this study suggests that the current situation of weak implementation of environmental supervision and evasion of environmental monitoring could be improved by promotion of internal and external human capital.