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Government’s awareness of Environmental protection and corporate green innovation: A natural experiment from the new environmental protection law in China

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  • Fang, Zhenming
  • Kong, Xiaoran
  • Sensoy, Ahmet
  • Cui, Xin
  • Cheng, Feiyang

Abstract

Based on the impact of the new environmental protection law promulgated by the Chinese government in 2015, we employ the difference-in-differences (DID) approach to investigate the impact of government environmental regulation on corporate green innovation. The evidence shows that government environmental regulation can significantly increase the number of green patents of heavily polluting industries. This result holds after a series of robustness tests. The analysis of the economic mechanism indicates that the new environmental protection law brings supervision pressure to heavily polluting firms, prompting them to improve the quality of information disclosure, thus improving green innovation. In addition, the regional economic development level, government subsidies, and public supervision can significantly affect the positive impact of the new environmental protection law. Meanwhile, the effect is more prominent in non-state-owned enterprises and in firms with small scale, low profitability, and weak internal governance.

Suggested Citation

  • Fang, Zhenming & Kong, Xiaoran & Sensoy, Ahmet & Cui, Xin & Cheng, Feiyang, 2021. "Government’s awareness of Environmental protection and corporate green innovation: A natural experiment from the new environmental protection law in China," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 294-312.
    • Handle: RePEc:eee:ecanpo:v:70:y:2021:i:c:p:294-312
    DOI: 10.1016/j.eap.2021.03.003
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    More about this item

    Keywords

    Environmental protection regulation; Green innovation; Information disclosure;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law

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