Economic policy uncertainty and green innovation: evidence from China

Abstract

Frequent economic policy adjustments lead to significant increases in economic policy uncertainty (EPU). Few studies have investigated whether EPU influences corporate green innovation. Using a sample of Chinese A-share listed firms from 2005 to 2019, we find strong evidence that EPU is significantly and negatively associated with corporate green innovation. Our moderating effect analysis shows that financial constraints exacerbate the negative impact of EPU on green innovation, while government environmental subsidies can significantly mitigate the negative EPU effect. Moreover, the negative relationship between EPU and green innovation is salient in privately owned enterprises, firms with less industry competition, and firms in regions with weak intellectual property protection. This study has important implications for policymakers regarding increasing government expenditure on environmental protection and strengthening intellectual property protection to promote corporate green innovation.