Third Party Environmental Disclosure and Firm's Green Innovation: Evidence from a Natural Experiment in China

This study examines whether third party environmental disclosure affect green innovation at the firm-level. We find that environmental disclosure promotes Chinese companies to carry out green innovations. We further demonstrate that environmental disclosure has a long-term positive impact on green innovation of companies. Our findings are robust to alternative measures and different model specifications. In addition, we show that the relationship between environmental disclosure and green innovation of companies is moderated by the stakeholder attention, company's location, company's ownership, company's industry and financing constraints. Overall, our results provide clear policy implications by revealing that third party environmental disclosure can be used as a substitute for environmental regulations at this stage.