Impact of environmental policy on the innovation of SMEs: Chinese evidence

Abstract

As environmental concerns continue to grow worldwide, the role of environmental policy in promoting sustainable development has become increasingly important. This study examines the impact of environmental policy on the innovation of small and medium-sized enterprises (SMEs) in China, a country where environmental regulation has been rapidly expanding in recent years. The analysis employs a regression model that controls for various firm-level and environmental factors that may affect innovation. A loan guarantee may boost an SME’s chances of acquiring borrowed funds, the number of loans obtained, expenses, capital equipment expenditures, and TFP by 2%, 17.4%, 7.6%, 6.16%, and 5.26%, respectively. Furthermore, the influence of information networks on performance is examined. Environmental policy and open innovation activity, opposite transfer, investor interactions, and SMEs’ success are all examined, with a focus on Chinese SMEs. The findings suggest that policymakers should consider designing more targeted and flexible environmental policies that provide incentives for SMEs to innovate and adopt sustainable practices, while minimizing potential negative impacts on their competitiveness and financial performance.