Towards sustainable development: Institutions, perceptions, and innovation

Abstract This study investigates the influence of the exogenous event of Chinese GIS (Government Inspection Supervision) on corporate environmental innovation. GIS significantly enhances green innovation in state‐owned enterprises (SOEs), according to difference‐in‐differences (DID) estimation. Moreover, executives' green perception significantly and positively moderates the constructive association between GIS and green innovation in SOEs. Additional analysis shows that inspection supervision encourages green innovation in SOEs by easing financial restrictions and boosting R&D spending. This effect is more prominent in areas where the intensity of government pollution source regulation is weaker and in enterprises with poorer performance in corporate social responsibility (CSR). Our research supports the conjecture that national governance can be a crucial determinant of green innovation, providing a valuable reference for accelerating China's green growth process and expanding the research perspective for the construction of governance systems in developing countries.