The power of anti-corruption in environmental innovation: Evidence from a quasi-natural experiment in China

Abstract

The role of corruption in economic development around the world has been fully discussed, but little is known about its environmental consequence, especially firms' sustainable strategies in most developing countries. We use multi-period difference-in-differences estimations with a quasi-experimental setting provided by the anti-corruption campaign to explore the relationship between corruption and environmental innovation. The results show that firm environmental innovation significantly increases following the anti-corruption campaign. In particular, this finding is more pronounced in subsamples with CEO duality and larger-size firms, while the results in state-owned and non-state-owned enterprises are mostly balanced. Further analyses indicate that enhanced environmental regulation is one of the mechanisms underlying this effect and the induced innovation activity is substantive rather than strategic patenting behavior. Our findings provide theoretical contributions to the research of corruption and environmental innovation. In addition, we offer empirical support for the positive policy implications of the anti-corruption campaign.