Economic policy uncertainty and the inhibitory effect of firms' green technology innovation

Abstract

Given the potential unforeseen impacts of environmental regulation changes on the innovative activities of micro agents, it is crucial to examine the effects of economic policy uncertainty (EPU) on business development. Several studies have shown that uncertainty acts as a hindrance and can hinder business innovation. This study utilizes data from 807 listed companies spanning from 2007 to 2019 and employs a double fixed-effects model to investigate the influence of EPU on enterprises' green technology innovation activities. The results reveal that EPU decreased firms' green technology innovation. Moreover, EPU inhibits corporate green technology innovation by increasing corporate financing constraints. Thus, financing constraints mediate between EPU and enterprises' level of green technology innovation, with increased market competition reducing the inhibiting effect of EPU on innovation. Furthermore, EPU decreases green technology innovation more among nonstate-owned and low-tech businesses than state-owned and high-tech businesses. This paper reveals the intrinsic mechanism of EPU on firms' innovation, clarifies the technological innovation process, and provides insights into governmental environmental governance from the perspective of EPU.