The impact of perceived environmental uncertainty on green innovation: evidence from text recognition of Chinese listed companies' annual reports

Abstract

China has implemented a series of environmental policies aimed at promoting green and innovative development by enterprises, to mitigate the adverse effects of environmental pollution. However, the frequent revision and introduction of environmental policies have also increased enterprises' perception of environmental uncertainty. This study, based on the upper echelon theory, uses data from listed companies in China from 2011 to 2021 to construct an index of perceived environmental uncertainty of firms through textual analysis and empirically examines its impact on green innovation and its potential mechanisms and boundary effects. The results show that, first, perceived environmental uncertainty of firms has a noteworthy inhibiting impact on green innovation. Second, mechanism analysis reveals that perceived environmental uncertainty of firms inhibits green innovation mainly in two ways: reducing the level of transparency in corporate information and reducing R&D investment. Third, the moderating effect finds that government subsidies can mitigate the inhibitory impact of perceived environmental uncertainty on green innovation among firms. In other words, higher government subsidies correspond to a reduced inhibitory effect of perceived environmental uncertainty on green innovation among firms. In addition, heterogeneity analysis shows that this inhibition is more obvious in non-state-owned enterprises, small enterprises, and enterprises in non-heavy pollution industries. This study holds immense practical significance for enterprises in harnessing the opportunities of green innovation amidst perceived environmental uncertainty, facilitating progressive green development, and ultimately fostering the harmonized growth of economic and environmental benefits for enterprises.

Keywords: Government subsidies; Green innovation; Information transparency; Perceived environmental uncertainty; R&D investment; Upper echelon theory.