National Environmental Policies and Corporate Green Innovation: The Mirroring Versus Substitution Hypotheses

ABSTRACT Drawing on comparative institutional theory, we study the nature and magnitude of the effects of national environmental policies on corporate green innovation in developed versus emerging markets. Using a sample of 1831 listed firms in 34 countries from 2002 to 2020, we find that national environmental policies increase corporate green innovation in emerging markets but not in developed markets. Our results further suggest that in emerging markets, market environmental policies act as a substitute for weak formal institutions, and nonmarket environmental policies mirror informal institutions. With our findings, we underline and clarify the strong role of national environmental policies on firm‐level green innovation and the crucial role of national institutions in this process.