The Response of Corporate Innovation to Climate Policy Uncertainty: Evidence from China

Abstract

As the climate change risks’ effects on social development increase, how to deal with these challenges has become extremely urgent, and it is necessary for companies to adapt to the changing circumstances. This paper estimates the impact of climate policy uncertainty on corporate innovation using unbalanced panel data with 2,449 listed companies from 2009 to 2020. The findings show a significant positive correlation between climate policy uncertainty and corporate innovation investment. Specially, two possible mechanisms are explored. Government environmental regulations force companies to produce cleanly. Optimistic market expectations encourage firms to shift to a green development model. Further, the renewable energy industry and state-owned enterprises’ powers of innovation are more robust. Jointly, our findings offer the government a clear direction for policy making by identifying the effects of climate policy uncertainty on corporate innovation.