The effects of state capital injection on firms’ green innovation

Abstract The environmental effects of state ownership are still controversial. The ‘reverse privatization’ phenomenon of injecting state capital into non-state-owned enterprises offers a novel perspective to study the environmental impact of state ownership. Using data on Chinese listed companies from 2011 to 2021, this study empirically analyses the impact of state capital injections (SCAI) on firms’ green innovation. Our results reveal that SCAI has a positive effect on the quantity and quality of green innovation, reflecting the net outcome of opposing forces. SCAI promotes green innovation by enhancing firms’ innovative capabilities and willingness, increasing environmental regulatory pressure and reducing managerial myopia, though it may hinder such innovation by exacerbating agency problems and policy burdens. Moreover, SCAI’s positive effects on green innovation quantity and quality are more pronounced for firms with relatively high state capital control, in heavily polluting industries and in less marketized regions.