Can low-carbon city pilot policy alleviate corporate green innovation bubbles? Evidence from a quasi-natural experiment in China

Guided by China’s “dual carbon” strategy, green innovation has been positioned as a central pillar of sustainable development in the manufacturing sector. While previous studies have primarily documented the positive impact of the low-carbon city pilot policy (LCCP) on the quantity of green innovation, concerns persist regarding the quality and substance of these outputs. Using panel data on A-share listed manufacturing firms from 2009 to 2023, this study examines the effect of the LCCP on corporate green innovation bubbles (CGIBS), which is defined as a decoupling between patent quantity and patent quality, through a multi-period difference-in-differences framework. The results indicate that the LCCP significantly reduces CGIBS, and this effect is robust to a range of sensitivity checks. Mechanism analyses suggest that the LCCP operates through three channels, namely alleviating firms’ financing constraints, reducing institutional transaction costs, and improving corporate governance. Further heterogeneity analysis suggests that the LCCP impact is more pronounced for firms subject to higher market valuation pressure, operating in non-high-carbon-emitting industries, and located in regions with weaker intellectual property protection. These findings contribute to the literature by providing micro-level empirical evidence on the regulatory role of environmental policies in shaping innovation quality. This study enriches the research on the evaluation of the policy effect of the LCCP and supplements the research on the field of “Porter hypothesis”. • Treat the Low-Carbon City Pilot Policy (LCCP) as a quasi-natural experiment. • Apply a multi-period DID model to examine its impact on corporate green innovation bubbles (CGIBS). • LCCP significantly suppresses green innovation bubbles. • Financing constraints, transaction costs, and corporate governance are key channels. • Provide firm-level evidence that environmental regulation improves innovation quality.