Environmental Assessment,officials’ Promotion Incentives And Corporate Green Innovation

With the increasingly serious global climate warming,environmental and climate change has become one of the biggest challenges that humanity facing in the foreseeable future.In 2020,President Xi Jinping made a solemn commitment to the international community that "China will achieve carbon peaks by 2030 and achieve carbon neutralization in 2060"(i.e,carbon peaking and carbon neutrality goals).This highlights China’s responsibility as a major country to take the initiative to assume the responsibility for global climate change and build a community with a shared future for mankind.The Chinese central government has always attached great importance to environmental problems,but the development model of high consumption and high emissions has not been completely changed.How to accelerate the transformation of the development model and promote the realization of the carbon peaking and carbon neutrality goals has become an urgent task.It has been argued that the environmental problems in China are deeprooted in the career incentives for promotions of local officials who have long been pursuing economic development at the expense of the environment.Under this cadre assessment system,local officials who are responsible for implementing environmental policies tend to relax the implementation of environmental policies and lower environmental standards in order to develop the economy.The central government have become acutely aware of such a built-in “environmentally unfriendly”incentive in the traditional cadre assessment system.Since 2007,the central government adjusted the cadre performance evaluation system by incorporating environmental goals and implementing one-vote veto of environmental goal evaluations,thus creating an institutional arrangement for environmental assessment.In this context,whether environmental assessment will motivate local officials to promote corporate green innovation and thus achieve green and low-carbon transformation has become an important but unexplored research topic.This thesis intends to answer the following main research questions:First,how does promotion incentives of officials influence firms’ green innovation in the context of environmental assessment? Second,if promotion incentives have an impact on firms’ green innovation,which boundary conditions will strengthen or weaken this impact? Third,what are the mechanisms by which officials’ promotion incentives affect firms’ green innovation?Considering that there are significant differences in promotion incentives between officials who close to retirement(i.e.,retiring officials)and those not close to retirement(i.e.,non-retiring officials),this thesis uses a categorical variable to construct a measure of promotion incentives.This thesis collects data on corporate green patents,corporate financial data,personal characteristics of officials,and regional pollutant emission data from 2008-2016 for listed companies in China’s heavy pollution industry,and conducts empirical analysis to draw the following conclusions.First,the empirical analysis of main effects shows that the promotion incentives of officials are associated positively with corporate green innovation in the context of environmental assessment,as evidenced by the fact that firms in provinces with non-retiring governors have a greater green innovation performance than those in provinces with retiring governors in the face of serious environmental pollution.This finding is consistent with the theoretical prediction that non-retiring officials are willing to make greater efforts and take greater risks to promote corporate green innovation in order to stand out in the promotion tournament of environmental assessment;in contrast,retiring officials need only to meet the minimal requirements of performance evaluations to ensure a smooth transition to retirement,and thus may lack strong incentives to work hard in promoting green innovation while waiting for their retirement.Second,the empirical analysis of moderating effects reveals that the positive effect of officials’ promotion incentives on firms’ green innovation is stronger for officials with higher promotion anticipations,state-owned enterprises(SOEs),politically connected firms,and firms with mandatory CSR disclosure.Moreover,this thesis makes a nuanced investigation on the effects of local SOEs and central SOEs and find that the former is stronger than the latter.These results are consistent with theoretical predictions.On the one hand,anticipations are closely related to motivation,and higher promotion anticipations increases motivation to gain promotion,thus prompting officials to make greater efforts to promote corporate green innovation.On the other hand,firms that align with officials’ goals or are more susceptible to officials’ influence(i.e.,SOEs,local SOEs,politically connected firms,and firms with mandatory CSR disclosure)are more likely to respond to government officials’ requests for green innovation.Third,regional marketization does not play a moderating role in the relationship between officials’ promotion incentives and corporate green innovation,which provides no support for the theoretical hypothesis.This thesis proposes that firms located in less market-oriented regions are more interfered by local governments and more dependent on government resources,which leads them to be more likely to respond positively to local governments.However,a less market-oriented institutional environment is not conducive to the development of firms’ green innovation.In less market-oriented regions,excessive government intervention leads to distorted market functions and inefficient resource allocation,which is not conducive to firms’ innovative activities.This result thus highlights the importance of market-based institutional development.Fourth,mechanism analysis shows that compared to firms located in provinces with retiring governors,firms located in provinces with nonretiring governors are more likely to receive environmental penalties,government R&D subsidies and state-owned bank loans.This is consistent with our theoretical mechanism that compared to retiring governors,nonretiring governors are more likely to promote green innovation by exerting stronger regulatory pressure(environmental penalties)and providing more economic incentives(government R&D subsidies,state-owned bank loans).Based on the aforementioned empirical findings,this thesis presents the following policy implications from both government and firm perspectives.From the government perspective,it should(1)continue to promote and improve the environmental assessment system by increasing the weight of environmental indicators in the assessment system and establishing lifelong accountability for environmental issues;(2)promotes the rejuvenation process of local leaders by improving the selection and training system for young cadres;(3)establishes a mandatory CSR or ESG disclosure system to exert substantial pressure for green innovation,and(4)strengthens marketization development to create a favorable environment for green innovation.From the firm perspective,(1)SOEs should play the role of a “pioneer” in green development,and continuously function as the forerunners and practitioners of ecological civilization construction;(2)firms should employ political connections to motivate their executives and reinforce green innovation,and(3)firms should seize the opportunity of environmental assessment and use the policies implemented by officials to increase investment in green innovation.This thesis harbors three core contributions: First,it not only identifies an important and unexplored antecedent of corporate green innovation –promotion incentives of officials,but also provides a new theoretical perspective – tournament theory – to reveal that greater promotion incentives drive government officials to make greater efforts to promote corporate green innovation in order to win the political tournament,thus contributing to the green innovation literature.Second,this thesis opens the black box of how officials’ promotion incentives influence firm(environmental)behavior by exploring the boundary conditions and influencing mechanisms of officials’ promotion incentives on corporate green innovation.Third,this thesis adds to the literature pertinent to the consequences of promotion incentives by providing a firm-level evidence that officials’ promotion incentives can work to decrease rather than increase pollution.