Journal of Service Science and Management, 2011, 4, 380-390
doi:10.4236/jssm.2011.43044 Published Online September 2011 (http://www.SciRP.org/journal/nm)
What Determines Chinese Firms’ Decision on
Implementing Voluntary Environmental Schemes?
Jun-Yi Shen1, Xiang-Dong Qin2
1Faculty of International Studies, Hiroshima City University, Hiroshima, Japan; 2School of Economics, Antai College of Economics
and Management, Shanghai Jiao Tong University, Shanghai, China.
Received May 4th, 2011; revised July 6th, 2011; accepted July 16th, 2011.
ABSTRACT
Understanding why firms choose to implement voluntary environmental schemes in a large polluted coun try like China
is important for both environmental economists and policy makers. In this paper, we utilize unique plant-level survey
data of 270 Chinese firms in manufacturing industry to id entify the key determinants of their decisions on certifying IS O
14001 environmental management standard and the Chinese Environmental Label. The empirical results exhibit that
while there are a number of factors (e.g., ownership, firm size, target market, and the number of rivals) having similar
effects on the certification decisions between the two examined programs, the unique factors that only affect the deci-
sion of certifying one program (i.e., ISO 140 01 or the Chinese Environmental Label) are also observed.
Keywords: Voluntary Environmental Scheme, ISO 14001, Eco-Label, Chinese Firm
1. Introduction
In the past decade, the trend towards promoting volun-
tary action and pollution prevention as opposed to man-
datory (command-and-control) environmental regulations
that prescribe quantity limits on pollutants had increased
as more governments worldwide faced and continue to
face limited environmental enforcement budgets [1]. The
emerging voluntary approach to pollution abatement be-
comes more and more popular in recent years. This is
because of a growing number of business-initiated ac-
tions to change corporate culture and management prac-
tices through the introduction of environmental label or
eco-label programs and international environmental ma-
nagement system certification programs such as the In-
ternational Standards Organization (ISO) programs [2].
Eco-labels have been used for over twenty years to pro-
vide consumers with information about a product which
is characterized by improved environmental performance
and efficiency compared with similar products without
those labels. The main purpose of promoting eco-label
programs is to avoid the possible asymmetric information
problem between producers and consumers, because
some environmentally friendly products normally have
unobservable characteristics [3]. In comparison to eco-
label programs, ISO programs concern the way a firm
goes about its production, and notdirectly the results of
this production. In other words, they concern processes,
and not products—at least, not directly [1]. Among them,
the ISO 14001 is an international, voluntary standard for
environmental management promoted by the ISO, which
formally includes five steps in an environmental man-
agement system as environmental policy, planning, im-
plementation and operation, checking and operation, and
management review.1
In the literature, a number of studies have been under-
taken on the determinants of firms’ environmental per-
formance and firms’ voluntary pro-environmental action
[5-18]. Among these studies, [12] employed panel data
models to study how environmental innovation by US
manufacturing industries responds to changes in pollu-
tion abatement expenditures and regulatory enforcement
during the period of 198 3 to 1992. They found that envi-
ronmental innovation responds to increases in pollution
abatement expenditures, however, increased monitoring
and enforcement activities related to existing environ-
mental regulations do not provide any additional incen-
tive to innovate. [9] examined data on compliance with
environmental regulations within the manufacturing sec-
tor in Mexico and found that the probability of comply-
ing depends on the kind of management practices of the
1For more detailed issues on the ISO 14001 management standard, see
[4].

What Determines Chinese Firms’ Decision on Implementing Voluntary Environmental Schemes?381
firm and the level of environmental training. [14] inves-
tigated whether firms’ characteristics influence their de-
cisions to join the Environmental Protection Agency’s
voluntary Green Lights program. They reported that con-
trary to conventional theory, the characteristics of firms
do affect their decisions to join Green Lights and co mmit
to a program of investments in lighting efficiency. [11]
examined empirically the determinants that led large
Japanese manufacturers to voluntary environmental com-
mitment and found that the costs and benefits of volun-
tary actions to enhance or protect the environment, the
capacity to act, as well as the environmental values, be-
liefs, and attitudes of managers are significant determi-
nants of voluntary environmental commitment.
In addition to the above researches on the factors in-
fluencing firms’ environmental performance and their
voluntary pro-environmental action, we find two studies
in the literature pointing to the impact of environmental
performance on firm performance. [19] conducted a case
study to examine the impact of environmental rating of
large pulp and paper, auto, and chlor alkali firms on their
stock prices and found that the market generally penal-
izes environmentally unfriendly behavior. [20] conducted
static and dynamic panel data analysis of the impact of
environmental performance on the firm’s financial per-
formance. They showed that environmental performance
has a neutral impact on the firm’s financial performance,
which is consistent with theoretical work suggesting that
firms invest in environmental initiatives until the point
where the marginal cost of such investments equals the
marginal benefit.
In recent years, China’s environmental problem, which
is considered as a byproduct of its rapid economic
growth, is becoming a well-known issue and receiving
more and more attentions from both economists and en-
vironmental specialists around the world. Previous stud-
ies in the environmental economics literature related to
environmental issues of Chinese firms paid a lot of atten-
tions to the financial incentives and endogenous en-
forcement in China’s pollution levy system (e.g., [15]),
industrial ownership and environmental performance in
China (e.g., [17]), bargaining power of Chinese factories
in enforcement of pollution regulation (e.g., [13]), rela-
tions among inspections, pollution prices and Chinese
environmental performance (e.g., [8]), and Chinese
firms’ technology development and energy productivity
(e.g., [16]). However, the issue on the factors influencing
Chinese firms’ practice of voluntary environmental
schemes (e.g., the ISO 14001 and eco-label) has not been
fully studied. For this purpose, a firm-level survey was
conducted in 2008 to obtain a better understanding of a
firm’s motivations, its decision-making procedures and
its characteristics vis-à-vis its decision on joining a vol-
untary environmental program. We consider two envi-
ronmental programs here, one is ISO 14001 certification
and the other is China Environmental Label (hereinafter
referred to as eco-label). Consequently, th is paper tries to
analyze the determinants that lead Chinese firms to im-
plement ISO 14001 and/or eco-label certifications. More
specifically, we provide empirical results regarding what
determines a firm’s choice as to: 1) whether or not it
should introduce a certified environmental management
system (i.e., ISO 14001); 2) whether or not it should im-
plement a certification of eco-label (i.e., China Environ-
mental Label).
The paper is organized as follows. Section 2 presents
our data and Section 3 discusses our empirical method-
ology. Our empirical findings are reported and discussed
in Section 4. The final section highlights policy implica-
tions of the results and provides suggestions for future
research.
2. Data
To investigate the determinants of Chinese firms’ choice
of adopting eco-label and ISO 14001 standard, we con-
ducted a firm-level survey in China in 2008. Detailed
face-to-face interviews were conducted at 270 firms,
which were chosen to represent China’s manufacturing
industry in a set of categories defined by sector, size
class and ownership structure. The majority of the inter-
views were focused on Yangtze Delta Area, which con-
sists of Shanghai, Zhejiang Province, Jiangsu Province,
and Anhui Province, to represent its strong economic
performance in China in recent years.2 As shown in Ta-
ble 1, the number of firms from this area is 196, making
up 72.59% of the sample.
In our view, the sample is well balanced among 13
sector categories based on the study of [16]. They are 37
firms in the chemicals sector, 30 in the food and bever-
age sector, 57 in the machinery, equipment and instru-
ments sector, 21 in the metal processing and products
sector, 16 in the nonmetal products sector, 19 in the tex-
tile, apparel and leather products sector, 15 in the timber,
furniture, and paper products sector, 14 in the medical
products sector, 10 in the rubber and plastic products
sector, 9 in the electric power sector, 7 in the automobile
and related products sector, 4 in the petroleum processing
and coking sector, and 31 in other sectors of manufac-
turing industry. The firms are also evenly distributed
along the size scale, with roughly similar numbers in
large, medium, and small classes. Size classes are de-
fined by employment ranges, with small firms employing
10 - 199 employees, medium about 200 - 1000 employ-
es and large more than 1000 employees. About 40% in e
2The GDP share of the Yangtze Delta Area over the whole country is
about 25.45% in 2006, while the population share is about 15.56% [21].

What Determines Chinese Firms’ Decision on Implementing Voluntary Environmental Schemes?
382
Table 1. Summary of the sample.
Characteristics n % Characteristics n %
Sector Ownership
Chemicals 37 13.70 State-owned 48 17.78
Electric power 9 3.33 Collective-owned 13 4.81
Food and beverage 30 11.11 Private-owned 107 39.63
Machinery and instruments 57 21.11 Foreign 49 18.15
Medical products 14 5.19 Joint-venture 53 19.63
Metal processing and products 21 7.78
Automobile and related products 7 2.59 Has eco-labeled products
Nonmetal products 16 5.93 Yes 69 25.56
Petroleum processing/coking 4 1.48 No 201 74.44
Rubber and plastic products 10 3.70
Textiles and leather products 19 7.04 Has ISO 14001 certification
Timber, furniture, and paper 15 5.56 Yes 77 28.52
Other sectors 31 11.40 No 193 71.48
Area Total revenue in 2007
Shanghai 123 45.55 <10 million RMB 33 11.11
Zhejiang 22 8.15 10 - 30 million RMB 36 13.33
Jiangsu 31 11.48 30 - 60 million RMB 32 11.85
Anhui 20 7.41 60 - 100 million RMB 29 10.74
Other provinces 74 27.41 100 - 200 million RMB 26 9.63
200 - 500 million RMB 32 11.85
Listed firm on the stock market 500 - 1000 million RMB 26 9.63
Yes 63
23.33 >1000 million RMB 43 15.93
No 207 76.67 No answer 11 4.07
Number of the employees Number of the rivals
<200 98 36.30 <10 95 35.19
200 - 1000 89 32.96 11 - 19 76 28.15
>1000 83 30.74 >20 99 36.67
Total 270 100.00 Total 270 100.00
the sample is private-owned, while the numbers of state-
owned, foreign-owned, and joint-venture firms are
roughly the same. In addition, 23.33% of firms are pub-
licly traded in the two stock markets in China (Shanghai
Stock Exchange and Shenzhen Stock Exchange). 259
firms answered their annual sales amount in the year of
2007 in our designated ranges, with roughly. similar
share in each category.3
reported that they had at least one eco-labeled product
and 77 firms have already certified the ISO 14001. The
number of firms with both certification is 23, accounting
for 8.52% of the sample.
As for the reasons of the eco-label certification given
by those firms with eco-labeled products, 73.91% (51
firms out of 69) concurred that products with the eco-
label certification would be more easily accepted by
consumers, while 40.58% admitted that they did so be-
cause of the government regulation. In addition, there
were 52.17% of the firms with the eco-label certification
reported that they regarded eco-labeling as a strategy for
promoting the firm’s prestige, and 57.97% answered that
In the interview, we asked the respondent whether the
firm has any eco-labeled products and whether the firm
has the certification of ISO 14001 standard. 69 firms
3The purpose to ask firms to report their annual sales amount in ranges
instead of in amounts is to avoid possible complaints.

What Determines Chinese Firms’ Decision on Implementing Voluntary Environmental Schemes?383
obtaining an eco-label is to demonstrate the effort for
environmental protection made by the firms. The last
reason that the certification fee for eco-labeling is not so
high was cited by 15.94% of the sample. With resp ect to
the reasons of ISO 14001 certification, 60 of the 77 firms
reported that their purpose was to reduce production
costs, 63 of the 77 firms admitted that they wanted to
reduce the environmental load caused by their production,
and 63 of the 77 firms stated that their purpose was to
raise their staffs’ environmental consciousness. Addi-
tionally, 54.55% of the firms with the ISO 14001 certifi-
cation reported that implementing ISO 14001 manage-
ment system would help them communicate with outside
more easily, 75.32% answered that they did so to in-
crease the firm’s credibility, and 62.34% said that their
purpose was to upgrade the firm’s prestige. Finally, the
number of the firms that cited other reasons (e.g., as a
combination with other management systems, etc.) was
11, making up 14.29% of the ISO 14001 certified firms.
3. Methodology
This paper seeks to identify the factors that induce the
certifications of eco-label and/or ISO 14001. The firm’s
decision to choose to certify is described by the follow-
ing latent variable models.
*
Ecolabelii Xi

  (1)
*
ISO 14001e
ii
X 
i

 (2)
where and denote whether a
firm has eco-labeled products and whether a firm has
ISO 14001 certification, respectively.
Ecolabel ISO 14001
X
represents a
matrix of explanatory variables capturing the factors that
may affect the certification decision of a firm (see more
detailed descriptions of these factors in Table 2).

and
 are coefficients matrix of
X
.
represents each firm, and 1,2,3,4,,2i70

and represent the error
terms in Equations (1) and (2), respectively. The vari-
ables marked with asterisks in the equations are latent
variables. They are linked to the observed variables in
the following way.
e
1a firm has eco-label ed products
Ecolabel 0otherwise
i



(3)
1a firm has ISO 14001 certification
ISO 140010otherwise
i



(4)
The above model can be estimated using a binary pro-
bit model if we assume the error terms in Equations (1)
and (2) follow the standard normal distribution. It is im-
portant to note that the parameters of the model, like
those of any nonlinear regression model, are not the mar-
ginal effects we are accustomed to analyzing. The com-
putation of the marginal effect of a continuous variable in
a probit model is performed in the following way.
[Ecolabel/ ]() EX
X
X


 (5)
[ISO 14001/]() EX
X
X



 (6)
where ()


is the standard normal density. In this case,
the marginal effects are usually evaluated at the sample
means of the data. Furthermore, another complication for
computing the marginal effect in a binary probit model
arises because
X
will often include dummy variables,
as the case in this study. The com putation of the m arginal
effect (ME) of a dummy variable can be done in the fol-
lowing way.
(1) (0)
MEP(Ecolabel 1|)P(Ecolabel 1|)
dd
xx


 (7)
(1) (0)
MEP(ISO 140011|)P(ISO 140011|)
dd
xx


(8)
where is a dummy variable and d()d
x
denotes the
means of all the other variables in the model.
4. Results
Tables 3 and 4 present results from a probit model of the
factors associated with eco-label and ISO 14001 certifi-
cations. The robust standard errors of the coefficients are
reported in the tables. In addition, we also calculate the
marginal effects according to Equations (5)-(8) and re-
port the results in Table 5. The detailed descriptions of
the variables are provided in Table 2.
4.1. Eco-label Certification
Table 3 indicates the existence of significant correlation s
between the reasons of eco-label certification admitted
by the firms and the certification decision in all cases
(models (1-4)). It is important to note that the presented
reasons provide different incentives. For example, Ac-
cepted_consumer and Promotion_strategy are more
likely related to firm’s economic incentive, while Envi-
ronment_protection seems to reflect that firms have a
strong motivation to take a pro-environment approach.
Whatever the differences of these incentives are, the es-
timated positive signs of these variables suggest that
relative to the omitted reason (i.e., the certification fee
for eco-labeling is not so high), a firm motivated by any
of these reasons is more likely to choose eco-label certi-
fication. Concerning the factor of ownership, Foreign_
owned and Joint_venture have significantly positive
signs in all cases, suggesting that foreign capital partici-
pation does have an important effect on the firm’s envi-
onmental certification decision. This result may attest r

What Determines Chinese Firms’ Decision on Implementing Voluntary Environmental Schemes?
384
Table 2. Definition of the variables.
Variables Description
Dependent variables
Ecolabel = 1 if there is eco-labeled product in the firm
ISO 14001 = 1 if the firm has ISO 14001 series certification
Explanatory variables
Accepted_consumer = 1 if the firm admits eco-labeled products are easily accepted by consumers
Government_regulation = 1 if the firm admits eco-labeling is based on the government’s regulation
Promotion_strategy = 1 if the firm regards eco-labeling as a strategy for promotion
Environment_protection = 1 if the firm admits eco-labeling is an effort for environmental protection
Cost_reduction = 1 if the firm admits ISO certification reduces production costs
Environment_load = 1 if the firm admits ISO certification reduces environmental load caused
Staff_consciousness = 1 if the firm admits ISO certification raises staffs’ environmental concern
Promote_communication = 1 if the firm admits ISO certification promotes communications with outside
Credibility_increasing = 1 if the firm admits ISO certification increases the firm’s credibility
Prestige_upgrading = 1 if the firm admits ISO certification upgrades the firm’s prestige
Foreign_owned = 1 if the firm is owned by foreign capitals
Joint_venture = 1 if the firm is a joint-venture enterprise
State_owned = 1 if the firm is a state owned enterprise
Private_owned = 1 if the firm is owned by private sectors
Other_enterprises = 1 if the main client of the firm is other enterprises
Individual_consumer = 1 if the main client of the firm is individual consumers
Government =1 if the main client of the firm is government
Listed_enterprise = 1 if the firm is a listed enterprise on the stock exchange market
Rivals Numbers of the rivals reported by the firm
Foreign_market = 1 if the firm mainly sells its products overseas
Firm_size Logarithm of the number of employees the firm has
Chemicals = 1 if the firm belongs to chemical sector
Electric power = 1 if the firm belongs to electric power sector
Food & beverage = 1 if the firm belongs to food and beverage sector
Machinery = 1 if the firm belongs to machinery, equipment and instruments sector
Medical = 1 if the firm belongs to medical products sector
Metal = 1 if the firm belongs to metal processing and products sector
Automobile = 1 if the firm belongs to automobile and related products sector
Nonmetal =1 if the firm belongs to nonmetal products sector
Petroleum = 1 if the firm belongs to petroleum processing and coking sector
Rubber & plastic = 1 if the firm belongs to rubber and plastic products sector
Textiles & apparel & leather = 1 if the firm belongs to textiles, apparel and leather products sector
Timber & furniture & paper = 1 if the firm belongs to timber, furniture and paper products sector
that foreign owners are more eager to increase environ-
mental protection initiatives to secure to prevent dis-
crimination or increase their legitimacy in the eyes of
these authorities.4 In addition, the results show that the
characteristics of firms’ client (i.e, other enterprises, in-
dividual consumers, and government) do not affect their
decisions on certifying eco-label.
Other firm characteristics appear to have a strong im-
pact as well, although the factor that a firm is listed on
he stock exchange is not significant.5 As expected, the t

What Determines Chinese Firms’ Decision on Implementing Voluntary Environmental Schemes?385
Table 3. Factors that affect the eco-label certification (dependent variable: Ecolabel).
(1) (2) (3) (4)
Constant –1.933(0.177)*** –2.879(0.454)*** –5.538(0.976)*** –8.038(1.703)***
Reasons of certifying eco-label
Accepted_consumer 1.399(0.343)*** 1.498(0.381)*** 1.978(0.467)*** 2.470(0.755)***
Government_regulation 1.572(0.520)*** 1.942(0.599)*** 1.904(0.849)** 1.672(0.793)**
Promotion_strategy 0.698(0.389)* 1.001(0.438)** 1.531(0.698)** 1.754(0.869)**
Environment_protection 0.786(0.364)** 0.705(0.392)* 1.303(0.658)** 1.248(0.599)**
Ownership
Foreign_owned - 1.292(0.482)*** 1.607(0.679)** 1.787(0.799)**
Joint_venture - 1.252(0.484)** 2.283(0.692)*** 3.130(0.870)***
State_owned - 1.071(0.554)* 0.985(0.705) 1.239(0.897)
Private_owned - 0.938(0.774) 1.434(0.767)* 1.155(0.918)
Clients
Other_enterprises - - –0.279(0.373) –0.736(0.591)
Individual_consumer - - 0.171(0.351) 0.015(0.398)
Government - - 0.746(0.432)* 0.264(0.658)
Other firm characteristics
Listed_enterprise - - 0.074(0.419) –0.319(0.496)
Rivals - - 0.925(0.388)** 1.680(0.676)**
Foreign_market - - 1.234(0.473)*** 1.139(0.533)**
Firm_size - - 0.308(0.087)*** 0.435(0.124)***
Sector
Chemicals - - - 0.242(0.835)
Electric power - - - 1.257(1.176)
Food & beverage - - - 1.962(0.933)**
Machinery - - - 0.605(0.640)
Medical - - - –0.137(0.738)
Metal - - - 1.402(0.822)*
Automobile - - - 1.975(0.856)**
Nonmetal - - - 2.245(1.159)*
Petroleum - - - 3.408(1.398)**
Rubber & plastic - - - 1.762(0.887)**
Textiles & apparel & leather - - - 0.762(0.539)
Timber & furniture & paper - - - –0.433(0.719)
Observations 270 270 270 270
Log likelihood –50.234 –44.139 –29.766 –23.499
Pseudo R2 0.608 0.655 0.663 0.725
Notes: ***, ** and * denote statistical significance at 1%, 5% and 10% levels, respectively. Numbers in parentheses are robust standard errors.
number of rivals is positively correlated with the certifi-
cation decision, indicating that the more bruising the
competition a firm faces, the more likely it certifies eco-
label to distinguish its product from others. Foreign_
market is positive and significant, suggesting that export-
oriented firms are more inclined to have eco-label certi-
fication. According to [11], this may occur because for-
ign consumers tend to be less able to monitor the per- e

What Determines Chinese Firms’ Decision on Implementing Voluntary Environmental Schemes?
386
Table 4. Factors that affect the ISO 14001 series certification (dependent variable: ISO14001)
(1) (2) (3) (4)
Constant –1.628(0.147)*** –2.081(0.289)*** –3.778(0.770)*** –4.424(1.054)***
Reasons of certifying ISO 14001
Cost_reduction 1.138(0.434)*** 1.295(0.459)*** 1.949(0.618)*** 2.737(0.802)***
Environment_load 1.616(0.384)*** 1.512(0.413)*** 1.438(0.427)*** 3.414(0.748)***
Staff_consciousness 0.426(0.412) 0.331(0.451) 0.377(0.602) 0.626(0.943)
Promote_communication –0.890(0.597) –1.953(0.618) –1.337(0.780) –2.151(0.983)
Credibility_increasing 0.896(0.404)** 0.972(0.411)** 1.273(0.685)* 2.519(1.151)**
Prestige_upgrading 1.251(0.651)* 1.368(0.707)* 1.493(0.769)* 1.501(0.765)**
Ownership
Foreign_owned - 1.033(0.372)*** 1.513(0.504)*** 2.726(0.686)***
Joint_venture - 0.640(0.358)* 0.845(0.480)* 1.436(0.790)**
State_owned - 0.436(0.449) 0.321(0.716) 0.748(0.785)
Private_owned - 0.308(0.651) 0.509(0.758) 1.055(1.160)
Clients
Other_enterprises - - 0.538(0.515) 1.044(0.603)*
Individual_consumer - - 1.010(0.386)*** 2.079(0.503)***
Government - - 1.162(0.444)*** 1.739(0.516)***
Other firm characteristics
Listed_enterprise - - 0.428(0.327) 0.109(0.426)
Rivals - - 1.255(0.372)*** 2.524(0.509)***
Foreign_market - - 0.624(0.348)* 1.647(0.520)***
Firm_size - - 0.289(0.111)*** 0.259(0.131)**
Sector
Chemicals - - - 2.766(1.052)***
Electric power - - - 4.920(1.810)***
Food & beverage - - - –1.522(1.206)
Machinery - - - –0.581(0.641)
Medical - - - 2.523(1.312)*
Metal - - - 0.085(0.609)
Automobile - - - 1.938(1.012)
Nonmetal - - - –2.245(2.054)
Petroleum - - - 2.175(0.824)***
Rubber & plastic - - - 3.811(1.287)***
Textiles & apparel & leather - - - –0.411(0.525)
Timber & furniture & paper - - - –1.066(1.265)
Observations 270 270 270 270
Log likelihood –53.696 –49.694 –28.395 –19.568
Pseudo R2 0.655 0.681 0.795 0.856
Notes: ***, ** and * denote statistical significance at 1%, 5% and 10% levels, respectively. Numbers in parentheses are robust standard errors.
formance of the facility or firm, as a result, more visible
signs of environmental commitment such as having a certified eco-label may legitimize their reason for doing business with the firm. In addition, there is a significantly

What Determines Chinese Firms’ Decision on Implementing Voluntary Environmental Schemes?387
Table 5. Marginal effects of the factors on the eco-label and ISO 14001 series certifications.
Eco-label certification ISO14001 certification
Reasons of certifying eco-label
Accepted_consumer 0.168*** -
Government_regulation 0.070*** -
Promotion_strategy 0.067* -
Environment_protection 0.025** -
Reasons of certifying ISO 14001
Cost_reduction - 0.687***
Environment_load - 0.701***
Staff_consciousness - 0.068
Promote_communication - –0.080
Credibility_increasing - 0.545**
Prestige_upgrading - 0.263*
Ownership
Foreign_owned 0.062** 0.696***
Joint_venture 0.219** 0.196*
State_owned 0.022 0.171
Private_owned 0.016 0.185
Clients
Other_enterprises –0.005 0.059*
Individual_consumer 0.000 0.332***
Government 0.001 0.378***
Other firm characteristics
Listed_enterprise –0.001 0.009
Rivals 0.085** 0.266***
Foreign_market 0.015** 0.165**
Firm_size 0.005*** 0.021**
Sector
Chemicals 0.001 0.078**
Electric power 0.032 0.082*
Food & beverage 0.090** –0.052
Machinery 0.004 –0.029
Medical –0.001 0.049*
Metal 0.037* 0.000
Automobile 0.137* 0.038
Nonmetal 0.164** –0.052
Petroleum 0.625** 0.049**
Rubber & plastic 0.083* 0.051**
Textiles & apparel & leather 0.002 –0.005
Timber & furniture & paper –0.001 –0.060
Notes: ***, ** and * denote statistical significance at 1%, 5% and 10% levels, respectively.
positive correlation between the certification decision
and firm size that is described by the logarithm of the number of employees.6 This result may be plausible be- cause larger firms usually enjoy economies of scale in

What Determines Chinese Firms’ Decision on Implementing Voluntary Environmental Schemes?
388
implementing certification. Finally, sector effect on the
decision of eco-label certification is presented in the re-
sults. We find significant effect in six sectors (i.e., food
and beverage, metal processing and products, automobile
and related products, nonmetal products, petroleum
processing and coking, and rubber and plastic products),
and no significant effect in other sectors.
4.2. ISO 14001 Certification
Table 4 presents several similar results as tho se in Table
3. Among the six designated reasons of certifying ISO
14001 management standard, four of them (i.e., Co st_
reduction, Environment_load, Credibility_increasing, and
Prestige_upgrading) exhibit strong correlation with the
certification decision, while there seem no significant
effects of raising staffs’ environmental consciousness
and promoting communications with outside on the deci-
sion of ISO 14001 certification. It is again shown that
foreign-owned and joint-venture enterprises are signifi-
cantly more likely to implement ISO14001 certification.
This result is consisten t with that of [17] that foreign and
joint-venture firms behave better than the Chinese firms
in environmental protection, but different from that of
[11] suggesting foreign ownership has no significant ef-
fect on Japanese firms’ decision of ISO14001 certifica-
tion. The ISO 14001 certificatio n is, as expected, signifi-
cantly and positively correlated with the number of rivals
and foreign market orientation. In addition, same as that
in the certification of eco-label, there seems also to have
economies of scale in the ISO 14001 certification proc-
esses because of the significantly positive sign of Firm_
size, which is consistent with the results in [5] and [11]
that larger firms are more likely to undertake voluntary
environmental actions.
Several different results between the eco-label and ISO
14001 certifications are found in the following determi-
nants. First, the characteristics of firms’ client are impor-
tant in the case of ISO 14001. Firms targeting at individ-
ual consumers and/or government are more likely to cer-
tify ISO 14001. In addition, Other_enterprises becomes
significant at 10% level if sector dummies are controlled
in the model (see the last column in Table 4). Further-
more, firms belonging to the sectors of petroleum proc-
essing and coking or rubber and plastic products are
more willing to certify ISO 14001, which is the same as
those in the eco-label case. However, four significant
sector dummies (i.e., Food & beverage, Metal, Automo-
bile, and Nonmetal) are no longer significant in the ISO
14001 case. Instead, firms in the sectors of chemical,
electric power, and medical products are more likely to
undertake the ISO 14001 certification.
4.3. Marginal Effects
4In comparison to our explanation, another view explained by [11]is
that foreign owners may be less willing to contribute to the social
well-
b
eing of the country in which the facility is located and, as a result
less inclined to invest in environmental protection above the level o
f
required regulation. However, our results do not support this point o
f
view. This may occur because in comparison to the case in Japan, a
large share of the products produced by most foreign-owned and
j
oin
t
-venture firms in China is directly exported abroad. Consequently,
the characteristics of their products including the pro-environmental
factor should meet what foreign consumers require.
5Whether a firm is listed on a stock exchange is used to proxy share-
holder pressure here. According to [1], the pressures that shareholders
exert over a firm arise as a result of discontent with environmental fines
which lower profits, and disillusionment with progress toward envi-
ronmental goals and with difficulties in raising new capital or attracting
new investors due to poor environmental performance. Therefore, they
p
ostulated that firms that are listed on a stock exchange are more likely
to feel such pressures and, as a result, be more likely to intensify thei
r
environmental initiatives in order to gain favor with or maintain their
relations with shareholders. However, our results do not support thei
r
p
ostulation in both eco-label and ISO 14001 certification decisions (see
the variable of Listed_enterprise in Tables 3 and 4). In our view, a
p
ossible explanation is that relative to the environmental performances
of the listed firms, most of Chinese investors in the stock market pay
much more attention to the revenues and profits of the firms. Therefore,
as a result, unlike their foreign counterparts, the listed firms in China
may not feel so much pressure of environmental issues from the share-
holders.
6We dropped the variable related to a firm’s annual sales amount that
could also be considered to proxy firm size in our final estimation. This
manipulation is based on two considerations. First, the high correlation
between a firm’s annual sales amount and the number of employees
(0.623) may cause a possible multicollinearity problem. Second, this
variable is not significant in both cases of eco-label and ISO 14001
even we dropped the variable of number of employees in the model.
The estimated marginal effects of each determinant of
the eco-label and ISO 14001 certifications are summa-
rized in Table 5. From the table, we can see that among
the reasons explaining both certifications, Accepted_
consumer has the highest marginal effect on the prob-
ability of choosing to certify eco-label, while Environ-
ment_load and Cost_reduction are the two largest effects
in the ISO 14001 certificatio n. It may be plausib le for the
former because eco-label is usually regarded as the sym-
bol of presenting the product’s pro-environment charac-
teristics to consumers. In other words, whether or not the
product with the label can be accepted by consumers is a
crucial incentive for a firm choosing to seek eco-label
certification. In contrast, since ISO 14001 is an interna-
tional voluntary standard for environmental management
systems, firms’ decision to undertake the certification of
it normally depends on how strong their incentives in
raising the level of the environmental management are.
Consequently, it is not surprising that trying to mitigate
the environmen tal load caused by the firms and reducing
their production cost become the largest two factors in-
fluencing the ISO 14001 certification decision.
Some determinants affect more the ISO 14001 certifi-
cation decision than those in the eco-label case. For ex-
ample, the effect of foreign-owned firm on the ISO
14001 certification decision (i.e., 0.696 ) is approx imately

What Determines Chinese Firms’ Decision on Implementing Voluntary Environmental Schemes?389
10 times larger than that on the eco-label certification
(i.e., 0.062). The similar result is also found in the factor
of foreign market orientation. The marginal effect of the
variable foreign_market on the ISO 14001 certification is
0.165, which is exactly 10 times larger than 0.015 in the
eco-label case. These findings may be explained by the
fact that ISO 14001 is more of an international standard,
while the eco-label is a Chinese certificate. So firms with
international elements tend to adopt more of the ISO
14001 certification. In Addition, there is no big differ-
ence between the effects of joint-venture firm on the
choice probabilities of both certifications (0.219 in the
eco-label case vs. 0.196 in the ISO 14001 case). Al-
though the factor of firms’ main clients is not significant
in the eco-label case, individual consumer and govern-
ment orientations affect similarly on the probability of
undertaking the ISO 14001 certification, both of which
are larger than that of Other_enterprises. Furthermore,
the effects of the number of rivals and firm size on
choice probability of the ISO 14001 certification are,
respectively, about 3 times and 4 times as those in the
eco-label case.
With regards to the effect of those significant sector
dummies on the certification decision, we find a big dif-
ference in the eco-label case. The ratios of the probab ility
of certifying eco-label by firms in petroleum processing
and coking sector to those firms in other sectors are ap-
proximately 4 for Petroleum vs Nonmetal and Automo-
bile, 7 for Petroleum vs Food & beverage, and 17 for
Petroleum vs Metal, respectively. In comparison to these
large ratios, the differences in the ISO 14001 case are
almost negligible.
5. Conclusions
Empirical investigation on the determinants of imple-
menting voluntary environmental schemes at the plant
level is scarce in China. To sh ade more light on this sub-
ject, we conducted a firm-level survey and apply the data
to study the factors influencing Chinese firms’ decision
to conduct the ISO 14001 and/or China Environmental
Label certifications. Our results exhibit several similar
evidences between the factors affecting the decisions of
these two certifications. First, in comparison to their
Chinese counterparts, foreign-owned and joint-venture
firms are more likely to use the certifications. Second,
the number of rivals a firm has is positively correlated to
its decision on the certifications. Third, foreign market
oriented firms are more willing to implement the certifi-
cations. Fourth, firm size defined by the number of em-
ployees a firm has plays a significant role in determining
its choice of different certifications. Fifth, firms in the
sectors of petroleum processing and coking or rubber and
plastic products are more likely to certify both ISO
14001 standard and eco-label. Sixth, whether or not a
firm is listed on a stock exchange is not a significant
factor in both cases. Besides the above mentioned simi-
larities, it is important to emphasize that we also find a
number of differences in the determinants of these two
certifications. First, the factor of a firm’s main client sig-
nificantly affects the decision of the ISO 14001 certifica-
tion, but not in the eco-label case. Second, sector effect
on a firm’s certification decision is different in the certi-
fications of ISO 14001 and eco-label. Finally, except for
the sector effect, other determinants influencing the ISO
14001 certification have higher marginal effects than
those corresponding factors affecting the eco-label certi-
fication.
Despite the potential problem such that our sample
size may not be large enough to ensure robust estimates,
our results presented in this paper have a number of in-
teresting policy implications for Chinese decision makers.
First, government policy makers can benefit from the fact
that the decisions of firms choosing to implement volun-
tary environmental schemes are influenced by the above
specified reasons other than regulation. Consequently,
government can provide incentives based on these rea-
sons to promote voluntary action and pollution preven-
tion as an alternativ e to mandatory environmental regu la-
tions. By offering appropriate incentives, programs such
as ISO 14001 and China Environmental Label can bring
win-win benefits to firms, consumers, and government.
Second, recognizing that various characteristics of firms
affect their decision makings in undertaking voluntary
environmental programs can help government design
more flexible policies than traditional regulatio ns such as
tax and command-and-control mandates. Third, ac-
knowledging that firms in different sectors have different
underling motivations in certifying ISO 14001 and/or
eco-label, Chinese government may form specified envi-
ronmental policies based on sector specifications, which
as a result could be more effective than the current un-
differentiated policies in China.
Finally, the present study is sugg estive of two areas for
further research. First, it should be noted that the results
and findings are based on firms mostly located in the
Yangtze Delta Area. Therefore, future studies may in-
clude firms in other areas of China, which in turn could
help to ensure the validity of these findings. Second,
various financial data other than annual sales amount,
which may also be important in determining firms’ deci-
sion of implementing voluntary environmental schemes,
are not included in the present study due to the fact that
most surveyed firms refused to reveal the information.
We leave this issue as an open challenge and expect a
greater effort to overcome it in follow up studies.

What Determines Chinese Firms’ Decision on Implementing Voluntary Environmental Schemes?
390
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