Environmental regulation and corporate R&D investment—evidence from a quasi-natural experiment

Jingchang Huang, Jing Zhao and June Cao

International Review of Economics & Finance, 2021, vol. 72, issue C, 154-174

Abstract: The question of whether environmental regulation stimulates innovation activities has long been important and controversial. This study explores an ideal setting, the low-carbon city pilot program conducted by the Chinese government as a quasi-natural experiment to address this question. We conduct a difference-in-differences approach to analyze the impact of environment regulation on R&D investment. We find that the program’s adoption has led to an increase in R&D investment of 0.145% as a percentage of total assets and 0.273% as a percentage of sales, indicating a positive effect of environmental regulation on R&D expenditures. The increase in R&D expenditures is greater for firms experiencing a larger increase in government subsidies, a greater decline in corporate tax or a greater improvement in financial condition following the low-carbon pilot program. A series of robustness tests support a causal interpretation of our findings and indicate that the observed effect of the low-carbon pilot program on corporate R&D investment is unlikely driven by chance. Our results provide in-depth insights into the economic consequences of low-carbon regulation policies which could be of interest to academic researchers and policymakers.

Keywords: Environmental regulation; Corporate R&D investment; Low-carbon pilot program (search for similar items in EconPapers)
JEL-codes: D72 G31 G32 G38 O32 Q58 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:72:y:2021:i:c:p:154-174

DOI: 10.1016/j.iref.2020.11.018

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