The impact of the new environmental protection law on eco-innovation: evidence from green patent data of Chinese listed companies

Innovation is an imperative way of harmonizing the relationship between environmental protection and economic growth. Reasonably creating institutional pressure to stimulate the innovation vitality of enterprises is a crucial issue in promoting the modernization of ecological environment governance systems and governance capacity. This paper considered China’s new environmental protection law (NEPL) as a quasi-natural experiment to evaluate the impact of environmental regulation on enterprise eco-innovation in a difference-in-difference (DID) framework. It also identifies the conditions of the NEPL that encourage enterprise eco-innovation. We found that the NEPL significantly hinders the level of enterprise eco-innovation. This inhibition is mainly associated with invention patents with high degrees of innovation rather than utility model patents, resulting from tightening financing constraints. Further, when considering enterprise heterogeneity in terms of ownership, size, and cost transfer ability, private and small-sized enterprises and enterprises with higher cost transfer ability are more affected by the implementation of the NEPL. Furthermore, enterprises with a better business environment are more likely to perform innovation activities. Our findings have valuable implications for evaluating the effects of policy implementation more scientifically and comprehensively, and consequently, promoting the “innovation compensation effect” of environmental regulation.