Do government environmental target constraints break the political resource curse? --A study on political connections and firm green innovation

Yangyang Sun and Yue Yang

International Review of Economics & Finance, 2024, vol. 96, issue PA

Abstract: This study combines government environmental target data (2003–2015) with green innovation among listed firms of China. After investigating the relationship between political connections and firm green innovation, we focus on whether government environmental target constraints can break the political resource curse and enhance green innovation. The findings suggest the existence of a political resource curse in firm green innovation. However, government environmental target constraints effectively mitigate this curse, increasing the quantity of green innovation in firms with political connections but at the expense of a decline in quality of green innovation. We further conduct a robustness analysis using data from 2003 to 2021, and the research findings remain consistent. Mechanism analysis indicates that government environmental target constraints effectively boost the quantity of green innovation in politically connected firms by reducing rent-seeking costs and increasing R&D subsidies. Simultaneously, government environmental target constraints amplify financial constraints, subsequently squeezing high-quality inputs for green innovation and resulting in a decline in quality. Furthermore, the intensity of government environmental regulation influences the relationship between political connections and green innovation in a non-linear way. When the intensity of government environmental regulation is high, it motivates politically connected firms to increase the quantity of green innovation but at the cost of reduced quality. Heterogeneity analysis also reveals diverse impacts of government environmental target constraints on green innovation in firms with political connections, considering factors such as levels and types of political connections, green innovation, social attention, industries, regional economic growth pressure, and market conditions.

Keywords: Environmental target constraints; Political connections; Green innovation; Political resource curse; Patent knowledge breadth; Sustainable development (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:96:y:2024:i:pa:s1059056024005264

DOI: 10.1016/j.iref.2024.103534

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