How Does Environmental Regulation Affect Corporate Green Innovation: A Comparative Study between Voluntary and Mandatory Environmental Regulations

Abstract

Environmental governance in China is a hybrid of mandatory and voluntary regulations in both implementation and enforcement. This paper aims to explore how voluntary environmental regulations (VERs) affect corporate green innovation (CGI) and the role of mandatory environmental regulations (MERs). The study uses panel data of 1,232 Chinese-listed manufacturing firms from 2004 to 2016 and the main findings are: first, VERs have a significant positive effect on CGI. Second, no significant effect has been found of MERs on firms’ CGI. Third, in areas where mandatory environmental regulations are weak, voluntary environmental regulation can better serve as a supplement to promote firms’ green innovation. The results are robust to a series of sensitivity checks. This study provides evidence that voluntary environmental regulation is more effective in encouraging enterprises to engage in green innovation activities, and it is an important supplement to mandatory environmental regulation.