Environmental centralization and firm green transition: Evidence from County-to-District reclassification in China

Within China's decentralized governance framework, the reform of converting counties into municipal districts (County-to-District Reclassification, CDR) facilitates the upward shift of environmental responsibilities, offering an opportunity to explore how environmental centralization drives firms' green transformation. Using this exogenous quasi-natural experiment, we apply the Dynamic Slack-Based Measure (DSBM) model to estimate green total factor productivity (GTFP) as a proxy for green transformation. Our findings show that CDR significantly enhances firm green transformation, a result that remains robust across sensitivity tests. Mechanism analysis reveals that CDR improves GTFP through enhanced environmental regulation and optimized resource allocation. The positive effects are more pronounced for district- and county-level enterprises, capital-intensive firms, and industries with high external financing dependency. Firms in non-two control zones, non-capital cities, and regions with strong policy continuity experience more significant green productivity gains. Additionally, regions with stronger city dominance over counties exhibit a greater green transformation effect than those with stronger county autonomy. Further analysis reveals that firms at the borders of reformed counties experience more substantial positive impacts, supporting the internalization of environmental externalities through centralization.