Abstract
This study examines the effect of environmental regulation on firms’ green innovation, as well as the heterogeneous effects among different firms. Using the sample of A-share listed firms in the heavy-polluting industry in China and the manually collected government-implemented environmental regulation from 2006 to 2018, we find strong evidence that environmental regulation has a significantly positive effect on firms’ green innovation. Further, our results show that environmental regulation has a more prominent effect on firms with poorer internal and external governance. In addition to promoting firm green innovation, environmental policies can benefit firms’ long-term development as well.
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