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Regulation-induced financial constraints, carbon emission and corporate innovation: Evidence from China

Di Cui, Mingfa Ding, Yikai Han and Sandy Suardi

Energy Economics, 2023, vol. 127, issue PB

Abstract: Prior literature documents that in developed economies, tighter environmental standards may induce higher firm innovations. In contrast, using China's firm-level CO2 emissions data, this paper finds that firms with higher CO2 emissions are associated with lower corporate innovation. A 1% increase in carbon emissions reduces research and development (R&D) expenditures by about 4.3% to 6.3%, having controlled for endogeneity concerns. While technical and commercial uncertainty of innovation can deter high carbon-emitting firms from investing in R&D, we find that high carbon-emitting firms are financially constrained when faced with exorbitant pollution-related expenses. Instead, such firms acquire firms with green assets and purchase low-polluting target assets to mitigate environmental pollution. The results are more pronounced in firms with poor corporate governance, resource-constrained non-SOEs, and highly polluting firms. Our results remain robust for different measures of R&D expenditures, green R&D and different components of carbon emissions.

Keywords: Carbon emission; R&D; Corporate innovation; Financial constraints (search for similar items in EconPapers)
JEL-codes: G30 G32 Q53 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:127:y:2023:i:pb:s0140988323005790

DOI: 10.1016/j.eneco.2023.107081

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