Governmental inspection and green innovation: Examining the role of environmental capability and institutional development

Abstract

AbstractAs an important method for normalizing firms' environmental behaviors, regulatory inspection has received much attention in both practice and research. However, a consistent conclusion regarding whether and under what conditions regulatory inspection leads to green innovation is lacking. Drawing on the attention‐based view, we argue that the threats or opportunities that top managers perceive from environmental inspection affect the attention they pay to the strategy of green innovation as a response. We hypothesize that firms lacking the capability of regulatory compliance are less likely to invest in green innovation and that the development of promarket institutions diverts managers' attention from reacting to governmental inspection. Using survey data on Chinese industrial firms, we confirm these hypotheses, the theoretical and practical implications of which are discussed.