The Cost of Conflict: Inter-State Tensions and Corporate Green Innovation
54 Pages Posted: 22 Oct 2024
Abstract
Based on the real-time conflict data between China and the world and the bilateral trade records, we construct an index that measures the influence of geopolitical clashes on firms. Using the novel index, our study reveals a detrimental effect of inter-state tensions on corporate green innovation, which is conceivably led by tougher financing conditions, weakened institutional pressure, and firms’ prudency in green investment. The findings are valid under various robustness examinations and endogeneity tests. Evidence from our heterogeneity analyses suggests that the adverse effect is more pronounced for non-politically connected firms, financially constrained firms, firms with lower CSR scores, firms located in less environmentally-conscious provinces, and firms importing more intermediate goods. We enhance the comprehension on firm green practices in the context of fractured and fragile global relations, and offer implications for scholars seeking to investigate the consequences of international adverse events from the microscopic firm perspective.
Keywords: inter-state tensions, Goldstein score, China, green innovation
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