Climate policy uncertainty and corporate innovation investment: Evidence from China
Jie Liu  1@  , Jing Chi  1@  , M. Humayun Kabir  1@  , Bilal Hafeez  2@  
1 : Massey University
2 : Cardiff University

This paper estimates the impact of climate policy uncertainty on corporate innovation investment using panel data with 3,197 listed firms from 2010 to 2022 in China. The findings show a significant positive correlation between climate policy uncertainty and corporate innovation investment, and this result continues to hold after controlling for endogeneity and conducting a series of robustness tests. Two possible mechanisms are explored. Government environmental regulations force firms to produce cleanly and invest more in innovation. Firms that have fewer connections with the government are more sensitive to climate policy uncertainty and invest more in innovation to mitigate the uncertainty risk. Additionally, this positive relationship for firms with higher government subsidies is stronger, and for firms with higher allocation of fixed assets disappears. We also discover that when firms invest more in innovation during a period of high policy uncertainty, their long-term performance and firm value will improve. This study shed light on the importance and influence of climate policy uncertainty on corporate innovation investment in China. 


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