Conference Agenda

This study investigates the impact of Regulation 18 on green innovation within Chinese firms. Introduced in 2013 to sever political ties in corporate governance, Regulation 18 mandated the resignation of government officials from business roles. Studying Chinese listed firms from 2010 to 2016, we utilize a difference-in-differences (DiD) model to evaluate its effects. Our findings reveal a significant influence of Regulation 18 on green innovation. Non-State-Owned Enterprises (non-SOEs) in High Energy Consumption, High Pollution, or Overcapacity (HHO) industries experienced reduced green innovation post-regulation, consistent with the legitimacy theory and social perspective, indicating a positive correlation between political connections and green innovation. Conversely, State-Owned Enterprises (SOEs) in HHO industries exhibited increased green innovation, aligning with the resource curse theory and tunneling arguments, suggesting a negative correlation between political connections and green innovation. Furthermore, the analysis extends to corporate financial performance, revealing a decline for politically connected non-SOEs in HHO industries post-Regulation 18, while improvements are observed for SOEs in the same sector.