Governments’ Environmental Targets and Corporate Green Innovation

Abstract

ABSTRACT Green innovation is essential for achieving sustainable economic development. By setting environmental targets, local governments encourage corporate green innovation, which is crucial for promoting high-quality economic growth. Using data from Chinese A-share listed firms from 2010 to 2022, we find that local governments’ environmental targets promote corporate green technology innovation. This effect is more pronounced in regions with lower economic targets and among firms that receive government R&D subsidies or lack political connections. A mechanism analysis reveals that environmental targets drive green innovation by increasing environmental investments. Our findings highlight the critical role of government in setting and implementing environmental targets, thus providing theoretical support for further corporate green technology innovation.