Does Environmental Regulation Induce Green Innovation? A Panel Study of Chinese Listed Firms

To promote cleaner production, China launched nation-wide Cleaner Production Audit (CPA) program in 2004. This study examines the “weak” version of the Porter hypothesis while focusing on Chinese listed firms from 1990 to 2010. In this study, we provided evidence on the influence of China's CPA program on innovation based on green patent data. Using a difference-in-difference (DID) method, we find that there is a positive regulation effect on green innovation, i.e. the “weak” Porter hypothesis has been realized in the CPA program in China. Moreover, our results suggest that the regulation effect is more pronounced in encouraging radical green innovations measured by environmental invention patents than incremental green innovation measured by environmental utility patents. Then, we find that the CPA program regulatory effect is also affected by moderation variables such as industrial pollution intensity, but not by firm ownership. Our findings shed light on the policy implications on how firms respond to environmental regulations.