Regulatory centralization and corporate green innovation: Evidence from personnel authority reform in China

We examine how enforcement credibility is associated with corporate green innovation investment. Exploiting China's 2016 Environmental Vertical Management Reform, which centralized environmental regulator appointments and created variation in regulatory credibility, our results suggest that enhanced enforcement credibility is associated with a 21.1% increase in green patent grants using Poisson pseudo-maximum likelihood estimation. Mechanism analysis reveals that firms respond through coordinated reallocation of financial and human capital: increasing R&D intensity, shifting hiring toward green-specialized personnel, and expanding their pools of green inventors. These input expansions are accompanied by improved innovation efficiency, treated firms generate more green patents per unit of R&D spending and reorient their patent portfolios toward environmental technologies, without deterioration in accounting performance or market valuation. This pattern is more consistent with strategic capability-building than with pure compliance costs, though we cannot directly estimate terminal net present value from a 10-year panel. Effects are significantly attenuated for financially constrained firms, directly linking the regulatory channel to capital allocation mechanisms, and amplified where local governments signal stronger environmental commitment. Our findings contribute to the corporate finance literature on how external governance shapes internal resource allocation and investment efficiency under regulatory pressure.