Abstract This study examines the relationship between partial privatisation (i.e., state ownership reduction) and green innovation in China. Employing a large dataset of 36,072 firm‐year observations between 2005 and 2022, we document a positively significant association between partial privatisation and green innovation, suggesting that privatisation promotes green innovation in Chinese firms. Further analyses shows that the relationship is stronger for firms in environmentally sensitive industries and those located in more developed regions. Our main finding is robust to the alternative measurement of variables and endogeneity concerns using the propensity score matching (PSM), firm‐fixed effects and the system generalised method of moments (GMM) approach. Finally, we document that green innovation in privatised firms yields superior performance. Our findings highlight the significant contribution of privatisation in the quest for low‐carbon emissions in China by promoting green innovation.
Usman et al. (Tue,) studied this question.