Does Carbon Policy Risk Enhance or Impede Green Innovation?

52 Pages Posted: 18 Oct 2022 Last revised: 20 Oct 2022

See all articles by Hao Shu

Hao Shu

Central South University School of Business

Weiqiang Tan

Education University of Hong Kong; The Education University of Hong Kong

Ping Wei

Central South University - School of Business

Date Written: October 8, 2022

Abstract

Technological progress has been regarded as one of main driving forces to facilitate the society’s transition to a low carbon economy. Exploring the effect of carbon policy risk on firms’ green innovation is important for understanding how regulatory risk impacts on firm innovation during the process of transiton. Using data from A-share listed firms in China from 2000 to 2018, we find that firms facing a high carbon policy risk tend to reduce their green innovation. This result is robust to tests intended to mitigate endogeneity and other alternative measures. This negative relationship is more pronounced among state-owned enterprises, carbon-sensitive firms, non-patent sensitive firms, and firms located in the eastern region, non-provincial cities, or regions with a high level of environmental enforcement than among other firms. Carbon policy risk increases firms’ financing constraints and costs and reduces their long-term debt. Our results also suggest that this negative effect of carbon policy risk on firm green innovation occurs over the long term and is stronger for green invention patent applications than for green utility-model patent applications.

Keywords: Climate change; Carbon policy risk; Green innovation; Green patent; China

JEL Classification: D21; O32; Q51; Q55

Suggested Citation

Shu, Hao and Tan, Weiqiang and Tan, Weiqiang and Wei, Ping, Does Carbon Policy Risk Enhance or Impede Green Innovation? (October 8, 2022). Available at SSRN: https://ssrn.com/abstract=4241882 or http://dx.doi.org/10.2139/ssrn.4241882

Hao Shu

Central South University School of Business ( email )

Changsha, Hunan 410083
China

Weiqiang Tan (Contact Author)

Education University of Hong Kong ( email )

Dept of Social Sciences
Education University of Hong Kong
Tai Po, NT 11111
Hong Kong

The Education University of Hong Kong ( email )

Tai Po
Hong Kong
Hong Kong

Ping Wei

Central South University - School of Business

Changsha, Hunan 410083
China

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