Uncertainty of uncertainty and corporate green innovation—Evidence from China

Abstract

The study assesses the effect of economic policy uncertainty’s ex-post volatility, measured as σ_EPU, on firm green innovation (GI). The results shed new light on the important factors for corporate green innovation. First, the volatility of economic policy uncertainty significantly reduces firm GI, with a greater impact on determining GI than economic policy uncertainty itself. Second, the negative nexus between σ_EPU and GI is more notable for non-state-owned and non-heavily-polluting firms, as well as firms with lower financing constraints, weaker environmental regulation, and lower marketization levels. Third, positive investor sentiment suppresses the hindering effect of σ_EPU on GI. Our findings remain valid after robustness tests. This study serves as a contribution to the literature on uncertainty and green innovation, as well as the literature on the effect of σ_EPU.