IDEAS home Printed from https://ideas.repec.org/a/eee/ecanpo/v88y2025icp476-491.html

Environmental pollution liability insurance policy and corporate green innovation: The effect of environmental governance and internal governance

Author

Listed:
  • Wang, Xiaoyan
  • Guo, Fang
  • Zhang, Bo
  • Li, Yuxuan

Abstract

As a crucial component of green finance, environmental pollution liability insurance exerts a substantial influence on corporate green innovation globally. Since 2007, China’s pilot work in this area has gradually advanced and become a model for other countries. In this study, we examine the panel data of publicly listed companies in China from 2007 to 2023 to analyze the effect of the environmental pollution liability insurance policy pilot on corporate green innovation. The findings reveal that implementing socialized environmental governance through the environmental pollution liability insurance significantly enhances corporate green innovation. These results remain valid after conducting robustness tests. Moreover, we analyze the mechanisms driving this effect. Our findings indicate that the insurance promotes corporate green innovation by improving corporate environmental, social, and governance (ESG) performance; enhancing the quality of internal governance; and mitigating financing constraints. Heterogeneity test results indicate that the positive effects are particularly pronounced and strong in non-state-owned, heavy-polluting, and high-tech companies, as well as in a company’s strategic innovation other than substantive innovation.

Suggested Citation

  • Wang, Xiaoyan & Guo, Fang & Zhang, Bo & Li, Yuxuan, 2025. "Environmental pollution liability insurance policy and corporate green innovation: The effect of environmental governance and internal governance," Economic Analysis and Policy, Elsevier, vol. 88(C), pages 476-491.
    • Handle: RePEc:eee:ecanpo:v:88:y:2025:i:c:p:476-491
    DOI: 10.1016/j.eap.2025.09.023
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0313592625003893
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eap.2025.09.023?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Zhang, Weijie & Li, Bowen, 2025. "Energy-use rights trading, technological innovation, and green transformation of energy-intensive manufacturing enterprises," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 528-544.
    2. Jensen, Michael C. & Meckling, William H., 2008. "Theory of the firm: managerial behavior, agency costs and ownership structure," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 48(2), April.
    3. Shiyi Chen & Xiaoxiao Ding & Pingyi Lou & Hong Song, 2022. "New evidence of moral hazard: Environmental liability insurance and firms' environmental performance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(3), pages 581-613, September.
    4. Rosa Maria Dangelico & Devashish Pujari & Pierpaolo Pontrandolfo, 2017. "Green Product Innovation in Manufacturing Firms: A Sustainability‐Oriented Dynamic Capability Perspective," Business Strategy and the Environment, Wiley Blackwell, vol. 26(4), pages 490-506, May.
    5. Zhang, Wenyue & Ke, Jinjun & Sun, Chuanwang, 2024. "Green innovation of heavily polluting enterprises under environmental liability insurance: Evidence from Chinese listed companies," Technological Forecasting and Social Change, Elsevier, vol. 206(C).
    6. Paul K. Freeman, 1997. "Managing Environmental Risk Through Insurance," Books, American Enterprise Institute, number 918175, September.
    7. Stuart L. Hart & Gautam Ahuja, 1996. "Does It Pay To Be Green? An Empirical Examination Of The Relationship Between Emission Reduction And Firm Performance," Business Strategy and the Environment, Wiley Blackwell, vol. 5(1), pages 30-37, March.
    8. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    9. Wang, Yaxian & Wang, Xiaoyu & Baležentis, Tomas & Chi, Yuanying & Streimikiene, Dalia, 2025. "Corrigendum to ‘Disentangling the effects of green finance in reducing CO2 emission from energy systems: Evidence from a novel factor decomposition mechanism’ [EAP Vol 85, March 2025, Pages 1721–1738]," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 1966-1966.
    10. Magat, Wesley A., 1978. "Pollution control and technological advance: A dynamic model of the firm," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 1-25, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yang, Minhua & Ma, Linkun & Gu, Yan & Wu, Wenfeng, 2025. "The impacts of green bonds on the green innovation: Evidence from the corporate green transformation in China," Emerging Markets Review, Elsevier, vol. 65(C).
    2. Ruixin Su & Tong Zheng & Yuzhao Zhong & Weizhou Zhong, 2023. "Role of Digital Inclusive Finance for High-Quality Business Development: A Study of China’s “Five Development Concept” Policy," Sustainability, MDPI, vol. 15(15), pages 1-21, August.
    3. Anabela Santos & Michele Cincera, 2022. "Determinants of financing constraints," Small Business Economics, Springer, vol. 58(3), pages 1427-1439, March.
    4. Zou, Ganna & Zhang, Shengbo & Gan, Xingqiong & Cheng, Hua, 2025. "How government green procurement incentivises corporate green innovation? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 1605-1626.
    5. Li, Weiping & Chen, Xiaoqi & Huang, Jiashun & Gong, Xu & Wu, Wei, 2022. "Do environmental regulations affect firm's cash holdings? Evidence from a quasi-natural experiment," Energy Economics, Elsevier, vol. 112(C).
    6. Kausar, Asad & Shroff, Nemit & White, Hal, 2016. "Real effects of the audit choice," Journal of Accounting and Economics, Elsevier, vol. 62(1), pages 157-181.
    7. Didier, Tatiana & Levine, Ross & Llovet Montanes, Ruth & Schmukler, Sergio L., 2021. "Capital market financing and firm growth," Journal of International Money and Finance, Elsevier, vol. 118(C).
    8. Chia-Ying Chan & Iftekhar Hasan & Chih-Yung Lin, 2021. "Agency cost of CEO perquisites in bank loan contracts," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1221-1258, May.
    9. Chen, Ruiyuan & El Ghoul, Sadok & Guedhami, Omrane & Wang, He, 2017. "Do state and foreign ownership affect investment efficiency? Evidence from privatizations," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 408-421.
    10. Francesco Gangi & Eugenio D'Angelo & Lucia Michela Daniele & Nicola Varrone, 2021. "Assessing the impact of socially responsible human resources management on company environmental performance and cost of debt," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(5), pages 1511-1527, September.
    11. Nguyen, Justin Hung & Qiu, Buhui, 2022. "Right-to-Work laws and corporate innovation," Journal of Corporate Finance, Elsevier, vol. 76(C).
    12. James J. Cordeiro & Giorgia Profumo & Ilaria Tutore, 2021. "Family ownership and stockholder reactions to environmental performance disclosure: A test of secondary agency relationships," Business Strategy and the Environment, Wiley Blackwell, vol. 30(4), pages 2091-2107, May.
    13. Hayam Wahba, 2010. "How do institutional shareholders manipulate corporate environmental strategy to protect their equity value? A study of the adoption of ISO 14001 by Egyptian firms," Business Strategy and the Environment, Wiley Blackwell, vol. 19(8), pages 495-511, December.
    14. Bai Xue & Zhuang Zhang & Pingli Li, 2020. "Corporate environmental performance, environmental management and firm risk," Business Strategy and the Environment, Wiley Blackwell, vol. 29(3), pages 1074-1096, March.
    15. Wen Chen & Changyi Zhu & Qi Cheung & Siying Wu & Jun Zhang & Jia Cao, 2024. "How does digitization enable green innovation? Evidence from Chinese listed companies," Business Strategy and the Environment, Wiley Blackwell, vol. 33(5), pages 3832-3854, July.
    16. Yucen Jiang & R. Shruti & Jairaj Gupta, 2025. "Does CEO inside debt enhance firms’ access to trade credit?," Review of Quantitative Finance and Accounting, Springer, vol. 64(1), pages 305-337, January.
    17. Honglu Ma & Wei Ning & Jiyuan Wang & Shouyang Wang, 2025. "Internalising externality: the impact of environmental pollution liability insurance on the green transformation of Chinese heavy-polluting firms," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 50(2), pages 381-404, April.
    18. Li, Tongxia & Ang, Tze Chuan ‘Chewie’ & Lu, Chun, 2023. "Employment protection and the provision of trade credit," Journal of Banking & Finance, Elsevier, vol. 155(C).
    19. Anamika Rana & Byomakesh Debata, 2025. "The Impact of Corporate Governance Structures on Corporate Investment: Moderating Role of Institutional Quality and Firm Life Cycle," Indian Journal of Corporate Governance, , vol. 18(2), pages 291-318, December.
    20. Dwenger, Nadja & Fossen, Frank & Simmler, Martin, 2015. "From financial to real economic crisis. Evidence from individual firm-bank relationships in Germany," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113000, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecanpo:v:88:y:2025:i:c:p:476-491. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/economic-analysis-and-policy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.