Do government subsidies promote enterprise green innovation? Evidence from listed companies in China

Abstract

Government subsidies are essential in guiding enterprises’ transformation and development. In the face of the green transformation dilemma for businesses during the transition from old to new growth drivers, it is crucial to investigate whether government subsidies can further enhance their effectiveness. We utilize a panel dataset of Chinese listed companies from 2007 to 2021 to explore the relationship between government subsidies and green innovation (GINN), with a specific focus on the moderating effect of marketization. We find that government subsidies not only significantly promote substantive green innovation (UGINN) and strategic green innovation (TGINN) but also improve business performance. The moderating effect model demonstrates the presence of market failure in GINN. We also show that marketization index (MI), environmental information disclosure (EDI), highly polluting industries (HPI), and manufacturing (MF) have significant moderating effects. The mechanism analysis further elucidates that government subsidies promote GINN by encouraging increased R&D investments. However, it is essential to note that these subsidies can also lead to inefficient investments by enterprises, resulting in a waste of resources. We offer significant enlightenment for understanding the government’s role in promoting GINN in enterprises and improving relevant subsidy policies.

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