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Economic policy uncertainty and the inhibitory effect of firms' green technology innovation

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  • Zhou, Xiaoxiao
  • Dai, Mengsi
  • Ma, Xiaowei
  • Charles, Vincent
  • Shahzad, Umer
  • Zhao, Xin

Abstract

Given the potential unforeseen impacts of environmental regulation changes on the innovative activities of micro agents, it is crucial to examine the effects of economic policy uncertainty (EPU) on business development. Several studies have shown that uncertainty acts as a hindrance and can hinder business innovation. This study utilizes data from 807 listed companies spanning from 2007 to 2019 and employs a double fixed-effects model to investigate the influence of EPU on enterprises' green technology innovation activities. The results reveal that EPU decreased firms' green technology innovation. Moreover, EPU inhibits corporate green technology innovation by increasing corporate financing constraints. Thus, financing constraints mediate between EPU and enterprises' level of green technology innovation, with increased market competition reducing the inhibiting effect of EPU on innovation. Furthermore, EPU decreases green technology innovation more among nonstate-owned and low-tech businesses than state-owned and high-tech businesses. This paper reveals the intrinsic mechanism of EPU on firms' innovation, clarifies the technological innovation process, and provides insights into governmental environmental governance from the perspective of EPU.

Suggested Citation

  • Zhou, Xiaoxiao & Dai, Mengsi & Ma, Xiaowei & Charles, Vincent & Shahzad, Umer & Zhao, Xin, 2024. "Economic policy uncertainty and the inhibitory effect of firms' green technology innovation," Global Finance Journal, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:glofin:v:60:y:2024:i:c:s1044028324000322
    DOI: 10.1016/j.gfj.2024.100960
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    10. Muhammad Arif Khan & Bin Meng & Irfan Ullah, 2025. "Uncertainty and Green Innovation Nexus: The Moderating Influence of Ownership Structure and Product Market Competition," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 32(3), pages 3262-3277, May.
    11. Umar Farooq & Mohammad Mahtab Alam & Bilal Haider Subhani & Mosab I. Tabash & Zilola Shamansurova, 2024. "Non-Linear Effects of Economic Policy Uncertainty on Green Innovation: Evidence from BRICS Countries," Sustainability, MDPI, vol. 16(21), pages 1-21, November.
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    14. Wei Tao & Jian-ya Zhou & Ye-ling Zhao, 2024. "Research on the path of green technology innovation driven by the Environmental Protection Tax Law: Based on data of heavy polluting enterprises," PLOS ONE, Public Library of Science, vol. 19(7), pages 1-17, July.
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