The question of whether environmental regulation stimulates innovation activities has long been important and controversial. To achieve sustainable development, the Chinese government has introduced the low-carbon pilot program. Using this environmental regulation as a quasi-natural experiment, we conduct a difference-in-differences analysis and find that the program’s adoption has led to an increase in R&D investment of 0.2% as a percentage of total assets and 0.3% as a percentage of sales, indicating a positive effect of environmental regulation on R&D expenditure. We then perform several tests, including parallel trends and placebo tests, which support a causal interpretation of our findings and indicate that the observed effect of the low-carbon pilot program on corporate R&D investment is unlikely driven by chance. Finally, the cross-sectional analysis indicates that the influence of environmental regulation on R&D expenditure is related to financial constraints, government support, and government connections. Our results provide useful insights for policymakers to better understand and evaluate the economic consequences of low-carbon development policies.

Environmental Regulation and Corporate R&D Investment-Evidence from a Quasi-Natural Experiment.

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