Political connections and green technology innovations under an environmental regulation

Abstract

Green technology innovation is an effective means to realize energy conservation and reduce carbon emissions, which plays a crucial role in promoting green and sustainable economic development. Although green technology innovation is increasing, the current understanding of how political connections affect firms’ green technology innovation remains limited. This study analyzes the effect of political connections, and the loss of political relations, on firms’ green technology innovations to extend the theoretical research. Using the data of Chinese A-listed firms from 2012 to 2017, the authors constructed a quasi-natural experiment to test the relationship between political connections and firms’ technology innovations based on an anti-corruption campaign event to improve corporate governance by restricting government officials’ involvement in firms’ top management in 2013. The results indicate that political connections hinder the firms’ green technology innovations and reduce their innovation output. We also find that the level of green technology innovations increased significantly when a company lost its political connections, as firms had to compensate for the lack of competitiveness resulting from the loss of political relationships by increasing investments in innovation. Various endogenous and robustness tests indicate that these results are consistent and robust. This study also compared the impact of political connections on firms’ green technology innovations with different situations, including market conditions, categories of connections, and China’s Environmental Protection Law. The findings indicate that political relationships have a more negative impact on firms’ green technology innovations when the degree of marketization is low. These findings not only contribute to extending the literature on companies’ political connections and green technology innovations but also provides a valuable reference for implementing market-oriented reforms in emerging market countries.