Greening through central inspection: The role of legitimacy pressure and risk-taking

We evaluate the effect of the Central Environmental Protection Inspection (CEPI) in China on green innovation for Chinese A-share firms from 2008 to 2019. The results of the difference -in-differences estimation show that the CEPI has a long-term positive effect on corporate green innovation in the form of green patents. The CEPI influences corporate green innovation through legitimacy pressure and value-enhancing corporate risk-taking. The positive effect is more pro-nounced in the provinces which are relatively more developed and less dependent on the sec-ondary industry. Moreover, this effect is primarily driven by overcompliance motive and is visible in firms with better internal governance, state-controlled firms, and firms with political con-nections. Our findings demonstrate the impact of campaign-style central supervision on corporate innovation policy.