Effects Of Environmental Regulation On Firms’ Innovation And Financial Performance

Environmental pollution is a global concern.In recent years,China has issued a series of policies to address sulfur dioxide pollution,which not only stimulate enterprises to improve their innovation level,but also affect their profitability.This paper is expected to provide some reference for better implementation of eco-environmental policies during the 14th Five-Year Plan period by reviewing and analyzing the first provincial-level environmental policies in China.This paper also provides empirical evidence for Strong and Weak Porter Hypothesis.It is expected to provide suggestions and references for innovation and management problems at the micro enterprise level.This paper takes the environmental regulations issued in 2006 as the policy impact and selects the number of patents and financial data of listed companies from 2001 to2010.In this paper,the triple difference method is used to compare regional differences,industry differences and time differences to judge the impact of enterprise innovation ability and financial performance,and verify Porter Hypothesis and High Cost Regulation Hypothesis.This paper also examines the heterogeneity of firm ownership,the effect of concurrent policy,the effect of firm location and industry transfer,etc.The long-term impact of environmental policies on corporate financial performance is also explored to ensure more robust results.The results show that in areas with high SO₂ emission reduction targets,stricter environmental regulation promotes enterprises in pollution-intensive industries to improve their innovation capacity and increase their innovation patent output,confirming the Weak Porter Hypothesis.Both actual and expected profitability of these firms declined,consistent with the High Cost Regulation Hypothesis.In the long run,the benefits brought by the output of innovative technologies can make up for the cost pressure brought by environmental regulations,and the profitability of enterprises has been improved.The Strong Porter Hypothesis has been verified in the long run.Heterogeneity tests show that large-scale enterprises show stronger innovation under the influence of environmental policies,while small-scale enterprises are more vulnerable to the impact on profits.The results remained robust under multiple tests.There are also some suggestions,such as increasing information guidance for environmental technology innovation,optimizing system design for enterprises in different industries,providing R&D fund support to small-scale enterprises and reducing taxes and fees.