Air pollution and corporate green innovation in China*

Green innovation is crucial for modern firms to achieve green transformation in the context of sustainable development. Although some studies have shed light on the determinants of green innovation, little is known about whether ambient environmental factors play a role. Using data of Chinese listed firms from 2007 to 2019, we explore the association between air pollution and corporate green innovation. We find that ambient air pollution in firms' headquarters is positively related to subsequent green innovation (hereafter, the AQI-GI relationship), consistent with stakeholder theory. This relationship is stronger for firms with more analyst reports, corporate site visits, and institutional ownership. Moreover, the AQI-GI relationship is robust based on the exogenous variation of air pollution extracted by strong wind and rainfall. Environmental protection law revision has a positive effect on the AQI-GI relationship. These findings suggest that firms actively respond to surrounding air conditions by implementing green innovation.

Automated summary

Green innovation is crucial for firms to achieve green transformation and little is known about the role of ambient environmental factors. Using Chinese listed firms' data from 2007 to 2019, this study finds a positive association between air pollution and corporate green innovation. This relationship is stronger for firms with more analyst reports, corporate site visits, and institutional ownership. The findings suggest that firms actively respond to surrounding air conditions by implementing green innovation.