Do Government-Based Customers Promote Green Innovation? Evidence from China

Abstract

This study investigates whether and how government-based customers affect corporate green innovation based on institutional theory and the resourced-based view. Using data from Chinese listed companies and hand-collected government-based customers among firms’ top five customers by distinguishing ultimate property rights, we find that government-based customers can promote upstream firms’ green innovation. This result is robust after conducting a series of robustness checks and controlling for endogeneity issues. Mechanism tests show that enhancing environmental awareness and providing resource support are two mechanisms through which government-based customers affect corporate green innovation. Further tests indicate that non-state-owned enterprises, heavily polluting industries, and fierce market competition can strengthen the positive impact of government-based customers on corporate green innovation. Overall, these findings suggest that government-based customers are a contributing factor for corporate green innovation, which deepens our understanding of the relationship between the government and enterprises in emerging markets.

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