Journal of Financial Economics Vol. 175 2026
Policy uncertainty reduces green innovation
Abstract
Policy uncertainty can undermine the power of government subsidies to stimulate environmentally friendly research and development. We show that Chinese firms’ green R&D falls as the uncertainty of environmental subsidies rises: Exogenous, weather-driven air pollution variability induces subsidies to fluctuate, and firms in areas with high weather-driven subsidy variability undertake less green R&D and hire fewer technical employees, controlling for the average level of subsidies. Heavy emitters and environmental technology firms are more affected. The results also illustrate how policy uncertainty can arise when policymakers are influenced by conditions that are salient but with causes that are difficult to disentangle.
- DOI
- 10.1016/j.jfineco.2025.104189
- Volume
- 175
- Pages
- 104189
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib