Does Environmental Regulation Induce Green Innovation? A Panel Study of Chinese Listed Firms

To promote cleaner production, China launched nation-wide Cleaner Production Audit (CPA) program in 2004. This study examines the weak version of the Porter hypothesis while focusing on Chinese listed firms from 1990 to 2010. In this study, we provided evidence on the influence of China's CPA program on innovation based on green patent data. Using a difference-in-difference (DID) method, we find that there is a positive regulation effect on green innovation, i.e. the weak Porter hypothesis has been realized in the CPA program in China. Moreover, our results suggest that the regulation effect is more pronounced in encouraging radical green innovations measured by environmental invention patents than incremental green innovation measured by environmental utility patents. Then, we find that the CPA program regulatory effect is also affected by moderation variables such as industrial pollution intensity, but not by firm ownership. Our findings shed light on the policy implications on how firms respond to environmental regulations.

Automated summary

This study examines the influence of China's Cleaner Production Audit (CPA) program on innovation using green patent data. The results show that the CPA program has a positive regulatory effect on green innovation, especially in encouraging radical green innovations. The study also finds that the regulatory effect is influenced by factors such as industrial pollution intensity.