Market-Incentive Environmental Regulation and the Quality of Corporate Innovation

Environmental issues have received worldwide attention in recent years, and a large body of literature has focused on environmental regulations and business innovation. However, very few studies examine the effects of market-incentive-based environmental regulation policies on the quality of corporate innovation. Thus, this paper uses China's A-share listed enterprises in 2010-2020 and China's carbon trading policy (CCTP) to conduct a quasi-natural experiment. The results show that the CCTP significantly increases the quality of innovation but does not affect the quantity of firm innovation. Furthermore, according to the result of heterogeneity analysis, the effect of CCTP on high-quality innovation occurs mainly in low-financialization and non-state enterprises.