Economic responsibility audit and SOEs’ green innovation

Using the issuance of a new regulation on economic responsibility audits in China in 2019 as a quasi-natural experiment, this paper investigates the role of economic responsibility audit in determining green innovation of state-owned enterprises (SOEs). By employing a difference-in-differences model, we analyse the 20,471 firm-year observations of Chinese listed companies over the period from 2016 to 2021. We find that SOEs enhance their level of green innovation by 12.87% more than non-SOEs in response to this policy intervention. The mechanism test results show that reducing agency cost and improving internal control quality are two potential pathways through which the economic responsibility audit promote SOEs’ green innovation. Moreover, cross-sectional analysis indicates that this positive effect is more pronounced in enterprises with high government innovation subsidies, high capital market attention, and large scale. Our results emphasize significant implications for facilitating green innovation and green development in SOEs.