Climate policy in the shadows: Investigate the unintended consequences of uncertainty on green innovation vitality in China

This research employs high-dimensional fixed-effects model to investigates the effect of climate policy uncertainty on firms' green innovation vitality and its mechanism role using data from Chinese listed companies from 2000 to 2022. Our empirical findings indicate that climate policy uncertainty hampers green innovation vitality of listed firms, and rising climate policy uncertainty negatively affects green innovation vitality. The results from heterogeneity analyses reveal that this negative effect is significant in Eastern and Central, SOEs and manufacturing firms. The mechanism analysis further indicates that climate policy uncertainty exerts an inhibitory effect on firms' green innovation vitality by intensifying corporate financing constraints and reducing green governance level. The inhibitory impact of Chinese climate policy uncertainty on green innovation vitality is moderated by digital transformation of companies and green funding incentives. The results of the double hurdle model suggest that once firms have decided to enter the field of green innovation, this decision is less likely to be altered by changes in climate policy uncertainty. However, among firms that have already chosen to engage in green innovation, heightened climate policy uncertainty significantly diminishes firms' green innovation vitality.