Linqing Liu, Yannan Geng, Jiajie Tang, Kai Yan
China’s central government is seeking to balance regional protection gaps when enacting environmental laws to achieve fair and efficient environmental enforcement. However, in-depth discussion is lacking about the heterogeneous shock of “one-size-fits-all” regulations on local enforcement discretion. Using manually collected data on 4,384 Chinese listed firms from 2003 to 2022 and the typical difference-in-differences model, this paper empirically examines the impact of the Environmental Protection Law Amendment (EPLA) on firms’ green mergers and acquisitions (GM&As). Disparities in local governments’ economic favoritism–based environmental enforcement discretion are conceptualized to distinguish the magnitude of EPLA effects on firms in different regions. Results reveal a significant and enduring boost from EPLA implementation on firms’ G&MA activities, especially for green firms, and these findings persist after a series of robustness checks. The impact appears significantly stronger for non-state-owned and non–heavily polluting firms but weaker for firms with high internal control. Mechanism analysis suggests that EPLA implementation indirectly endorses firms’ GM&As by raising local governments’ environmental awareness and contributing to firms’ green executive team building. By introducing an important legal concept into environmental research, this study highlights a discrepancy between the development and enforcement of governmental environmental regulations. The results provide meaningful implications for academics and policymakers.