Payments for Watershed Services and corporate green innovation

China is promoting Payments for Watershed Services (PWS) in increasing regions for water pollution mitigation. In this study, we provided empirical evidence on the influence of China's PWS programs on green innovation based on green patent data. Results show that PWS results in more R & D and green innovation at the corporate level. We attribute this to increased regulatory pressure on firms following PWS by providing evidence that firm-level environmental penalties are increased in upstream areas following PWS, and PWS's positive effect on R & D and green innovation is stronger in firms with more sewage discharge and environmental penalties. Moreover, firms that invested in wastewater treatment facilities may not increase as much green innovation as other firms after PWS. Furthermore, this positive effect is more pronounced among firms with more R & D staff, less financial constraints, lower market competition, and state-owned enterprises.

Automated summary

China's Payments for Watershed Services (PWS) program has been found to have a positive impact on green innovation in corporations, leading to increased R&D efforts and green patent filings. The study shows that PWS increases regulatory pressure on firms in upstream areas, resulting in higher environmental penalties. This pressure, combined with firms' sewage discharge and previous environmental penalties, further enhances the positive effect of PWS on R&D and green innovation. However, the study also finds that firms investing in wastewater treatment facilities do not experience the same level of increase in green innovation after PWS. Moreover, the positive effect of PWS is more pronounced in firms with more R&D staff, lower financial constraints, less market competition, and those that are state-owned enterprises.