Fiscal and Tax Policies, Access to External Financing and Green Innovation Efficiency: An Evaluation of Chinese Listed Firms

Abstract

China has placed significant importance on the development of a circular economy and achievement of sustainable prosperity. It employs multiple fiscal and tax policies to facilitate clean production and improve resource efficiency by fostering corporate green innovation. Policy signalling boosts companies’ external funding, including debt and equity. As such, this research focuses on how government subsidies and tax incentives influence corporate green innovation efficiency, accounting for the mediating roles of debt financing and equity financing. Under the SBM model, we utilise the Luenberger index to quantify green innovation efficiency. In addition, the fixed-effect regression with 19,228 firm-year observations from 3549 firms between 2015 and 2021 is used. Based on empirical findings, government subsidies reduce green innovation efficiency, while tax incentives increase it. In addition, debt financing mediates the association between tax incentives and corporate green innovation efficiency. Furthermore, government subsidies and tax incentives play more significant roles in non-state-owned enterprises (non-SOEs) and for businesses in growing and mature stages than other listed firms. To improve access to external financing and green innovation efficiency, it is suggested that the government implement various government subsidies or tax incentives according to business characteristics, with each company applying policies customised to its specific circumstances.