Administrative Approval Reform and Firm Green Innovation: Evidence From China

ABSTRACT This study investigates the impact of China's administrative approval reform on firm green innovation using a difference‐in‐differences (DID) approach with data from 24,981 firm‐year observations of Chinese listed manufacturing firms from 2000 to 2023. The reform, characterized by establishing administrative approval centers, significantly enhances firm green innovation, as measured by the number of green patent applications. Robustness checks, including alternative measures of green innovation and instrumental variable analysis, confirm the positive effect. Mechanism tests reveal that the reform primarily promotes green innovation by alleviating firm financing constraints, rather than enhancing market competition or curbing management short‐termism. The findings underscore the importance of reducing institutional transaction costs and easing financing constraints to foster green innovation, thereby offering insights for policymakers to promote sustainable development through institutional reforms.