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Green innovation under financial and policy uncertainty: Evidence from China

Author

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  • Mirza, Sultan Sikandar
  • Xu, Ninglu
  • Corbet, Shaen
  • Scrimgeour, Frank

Abstract

This study examines the effect of idiosyncratic risk on the green innovation of A-share listed companies in China from 2010 to 2021, using idiosyncratic risk as a proxy for financial risk. Results indicate that idiosyncratic risk adversely affects a firm’s green innovation, which is negatively mod- erated by heightened economic policy uncertainty (EPU), highlighting that firms tend to defer or halt green innovation investments under high EPU, appreciating the ’real option’ value of a deci- sion to ‘wait-and-see’. Further, policy determinant analysis reveals that the negative moderation originates from trade-related policy uncertainties. Heterogeneity analysis reveals that the primary findings are more pronounced in non-SOEs and those companies determined to be larger, older, and more leveraged firms with elevated ESG performance. Findings are found to be robust across several various econometric approaches. This research contributes to the literature on corporate green innovation by analysing the moderating role of EPU and providing insights for managers, investors, and policymakers.

Suggested Citation

  • Mirza, Sultan Sikandar & Xu, Ninglu & Corbet, Shaen & Scrimgeour, Frank, 2025. "Green innovation under financial and policy uncertainty: Evidence from China," Research in International Business and Finance, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:riibaf:v:76:y:2025:i:c:s0275531925001126
    DOI: 10.1016/j.ribaf.2025.102856
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    More about this item

    Keywords

    Idiosyncratic risk; Green innovation; Economic policy uncertainty; Real options;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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