Will environmental regulations induce firms to innovate and improve their environmental performance? This paper examines the impact of a regulation that mandates heavy polluting industries to save energy and reduce emissions using data from Chinese listed companies. We show that the regulation significantly drive firms to improve their corporate environmental performance, while simultaneously inhibiting their innovation activities. We also identify that innovation activities generate a suppression effect between environmental regulation and corporate environmental performance.
WU et al. (Wed,) studied this question.