Regional Happiness and Corporate Green Innovation: A Financing Constraints Perspective

Abstract

In China’s period of economic transition, enterprises often find it difficult to obtain the support of formal institutions and the capital market, so informal institutions such as value and social networks are particularly important resources. Regional happiness can influence corporate green innovation by shaping the external environment. This study takes a sample of Chinese A-listed companies and empirically tests the impact of regional happiness on corporate green innovation by constructing happiness data at a city level. The empirical results show that in cities with high levels of happiness, the green innovation level of listed companies is higher. This is manifested by a higher number of green patents and green invention patent applications. To test for reliability, a series of robustness tests were carried out. First, we performed 2SLS regression using the instrumental variable method in consideration of the possibility of a reverse generation of endogenous problems. Second, we remeasured corporate green innovation using a green patent authorization considering the rationality and applicability of the measurement method of core variables, and then remeasured the regional happiness based on a text analysis of social media content. Both tests showed that the conclusions are robust. Mechanism analysis revealed that regional happiness has an impact on corporate green innovation through financing constraints, namely, that it can either alleviate enterprises’ financing constraints, or substitute for regional financial development to promote corporate green innovation. Further analysis showed that, for enterprises lacking political connections, regional happiness plays a significant role in promoting green innovation. This indicates that, in the absence of financing convenience, the resource effect brought by regional happiness acts as a substitute for an implicit government guarantee. This study provides new insights into the determinants of corporate green innovation and the value of informal institutions in environmental sustainability.