How Does Government Supervision Affect Firms' Environmental Innovation? The Role of Attention Allocation and Political Connections

Government supervision is one of the most critical factors affecting firms' adoption of environmental innovation behaviors. Drawing on legitimacy theory and the attention‐based view, we propose that attention allocation mediates the link between government supervision and firms' environmental innovation, while political connections moderate the relationship. We test our hypotheses using a sample of 10,131 observations for 921 A‐share manufacturing companies listed on the Shanghai and Shenzhen Stock Exchanges between 2012 and 2022. The results show that government supervision has a positive role in promoting environmental innovation in manufacturing firms. Firms' policy‐attention allocation plays a partial mediating role in the government supervision–environmental innovation relationship, while political connections weaken the positive effect of policy‐attention allocation on environmental innovation. The study unveils important practical implications for governments to improve supervision and for firms to enhance their environmental innovation.