Does Policy Uncertainty Distort Green Innovation? Evidence from Heavy-Polluting Firms in China

Vollständiger Abstract

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Green innovation is essential to the low-carbon transition, but aggregate patent counts may conceal changes in the technological quality of corporate innovation. Using this observation as a starting point, this study asks how economic policy uncertainty (EPU) affects green innovation and its quality structure among Chinese heavy-polluting firms. Using panel data on A-share listed firms from 2010 to 2023, we distinguish green invention patents from green utility model patents and estimate two-way fixed-effects models. We find that EPU significantly reduces substantive green innovation and weakens the relative position of green invention patents, even though strategic green innovation does not decline correspondingly. These patterns hold across alternative patent measures, quality indicators, EPU specifications, and placebo tests. EPU is also associated with tighter financing constraints, higher cash holdings, and weaker bank credit access, and among these three responses, financing constraints offer the most robust independent explanation. Taken together, the results suggest that policy uncertainty can alter the composition of green innovation even when visible patenting activity is maintained, underscoring the importance of stable policy expectations and sustained financing for substantive green innovation.