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The interactive effect of environmental penalties and environmental subsidies on corporate environmental innovation: Is more better or worse?

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  • Li, Ruiqian
  • Ramanathan, Ramakrishnan

Abstract

Most previous studies fail to investigate the interactive effects of different environmental instruments. Whether adopting more environmental instruments is better or worse for corporate environmental innovation (CEI) remains unclear. In this study, we distinguish between regulatory pressures as punitive pressures (environmental penalties, EP) and incentive pressures (environmental subsidies, ES) and focus on investigating whether EP and ES act as complements or substitutes on CEI. The results reveal that the interactive effect of EP and ES can act as substitutes rather than complements in promoting CEI. The results remain unchanged after a series of robustness tests. Further heterogeneity analysis reveals that the substitutive effect of EP and ES on CEI is more pronounced for state-owned firms and for firms operating in regions characterized by higher environmental quality and greater marketization. Our results provide valuable insights for the government on achieving an optimal outcome by mixing environmental instruments to promote CEI.

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  • Li, Ruiqian & Ramanathan, Ramakrishnan, 2024. "The interactive effect of environmental penalties and environmental subsidies on corporate environmental innovation: Is more better or worse?," Technological Forecasting and Social Change, Elsevier, vol. 200(C).
    • Handle: RePEc:eee:tefoso:v:200:y:2024:i:c:s0040162523008788
    DOI: 10.1016/j.techfore.2023.123193
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