How does green industrial policy affect corporate green innovation? Evidence from the green factory identification in China

Ying Liu, Hongyun Huang, William Mbanyele, Zhixing Wei and Xin Li

Energy Economics, 2025, vol. 141, issue C

Abstract: Whether and how green industrial policy effectively nudges corporate sustainable performance remains an ongoing debated topic in the academic. In this study, we take the first step and examine the link between green industrial policy and corporate green innovation. We utilize the staggered adoption of the Green Factory Identification (GFI) in China as a plausibly exogenous shock. The Staggered Difference-in-Difference analysis demonstrates a significant positive association between the GFI and green innovation. It remains robust even after conducting various tests to ensure its validity. Additionally, we find that government research and development (R&D) subsidies exhibit an inverted U-shaped effect on this relationship. Furthermore, we elucidate two potential mechanisms that underlie the augmentation of green innovation facilitated by the GFI: alleviating financing constraints and fostering external supervision. Moreover, the positive impact of the GFI appears to be more pronounced among non-state-owned firms, those with superior managerial abilities, and those without political connections. More importantly, the economic consequences of the GFI implementation indicate improved corporate financial performance. As a noteworthy example of green industrial policy, green factories also demonstrate regional spillover effects, driving green development within the same region.

Keywords: Green industrial policy; Green factory; Green innovation; Government R&D subsidies; Staggered difference-in-difference (search for similar items in EconPapers)
JEL-codes: D82 G38 Q01 Q55 (search for similar items in EconPapers)
Date: 2025
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:141:y:2025:i:c:s0140988324007564

DOI: 10.1016/j.eneco.2024.108047

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