Risk or Opportunity? The High Sensitivity of Corporate Green Innovation to Environmental Policy Uncertainty: Evidence from China

China is constantly promoting green economic transformation through environmental policy adjustment. However, what impact the uncertainty brought about by environmental policy adjustment will have on corporate green innovation has become an issue worth paying attention to. Based on the option theory, this paper establishes a logical framework to explain the impact of environmental policy uncertainty on corporate green innovation through risk-taking and uses the China environmental policy uncertainty and the data of A-share listed companies for empirical tests. The findings are as follows: in the Chinese institutional context, environmental policy uncertainty enhances corporate green innovation inputs and outputs, and effectively motivates corporations to improve their green innovation levels. The findings are as follows: in the Chinese institutional context, environmental policy uncertainty is perceived by firms as an opportunity rather than a risk, enhancing corporate green innovation inputs and outputs and effectively motivating corporations to improve their green innovation levels. The mechanism test shows that environmental policy uncertainty increases the level of corporate risk taking, thus stimulating green innovation. The mediating effect of corporate risk taking is supported. The heterogeneity analysis verifies the asymmetric influence of environmental policy uncertainty on corporate green innovation. This study reveals an important link between the external institutional environment and corporate green innovation in emerging economies, and the policy implication is that governments need to facilitate the transition to a green economy through sound environmental policy adjustments.

Automated summary

China is promoting green economic transformation through environmental policy adjustment. This study examines the impact of environmental policy uncertainty on corporate green innovation using option theory and empirical tests. The findings show that in China's institutional context, environmental policy uncertainty enhances corporate green innovation and stimulates corporations to improve their green innovation levels. The mechanism test demonstrates that environmental policy uncertainty increases corporate risk taking, thereby stimulating green innovation. The study reveals the important link between the external institutional environment and corporate green innovation in emerging economies.