Government Behavior and Innovation: The Role of Financial Target Setting on Corporate Green Innovation

As governments worldwide grapple with the urgent need to mitigate climate change, understanding the nuanced relationship between fiscal targets and environmental innovation is crucial for crafting effective policy frameworks. Green technological advancement stands as the cornerstone of enterprise competitiveness, driving improvements in both economic prosperity and environmental sustainability. Government fiscal policies play a pivotal role in shaping the landscape of green transformation within enterprises, particularly through the establishment of fiscal revenue targets. Drawing upon data from prefecture-level cities and enterprise records, this study employs empirical analysis utilizing a fixed effects model and instrumental variable method. Our findings underscore the significant impact of fiscal revenue target setting on the trajectory of green technological advancement within enterprises. Specifically, the imposition of fiscal revenue growth targets exerts a dampening effect on the propensity for green technological advancement among enterprises. Notably, this disincentive is particularly pronounced among state-owned enterprises, as well as those with lower and moderate returns on capital, and those characterized by labor-intensive operations. Furthermore, our research delves into the underlying mechanisms of this inhibitory effect. We ascertain that the pressure associated with fiscal revenue growth targets hampers corporate green technological advancement by amplifying tax burdens and exacerbating financing constraints. In light of these findings, our study not only contributes to the theoretical understanding of the interplay between government fiscal policies and corporate innovation but also provides empirical evidence to inform strategies aimed at reconciling the imperative of fiscal revenue growth with the imperative of fostering green technological advancement within enterprises. In the broader context of governmental efforts to address climate change, this research underscores the importance of aligning fiscal policies with environmental objectives.