Science of the Total Environment 746 (2020) 140810

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Science of the Total Environment

journal homepage: www.elsevier.com/locate/scitotenv

Can direct environmental regulation promote green technology

innovation in heavily polluting industries? Evidence from Chinese
listed companies
Xiang Cai a,b,c, Bangzhu Zhu b,c,⁎, Haijing Zhang a,⁎⁎, Liang Li b,c,d, Meiying Xie b
a
School of Business, Guilin University of Electronic Technology, Guilin 541004, China
b
School of Business, Nanjing University of Information Science and Technology, Nanjing 210044, China
c
Research Center for Prospering Jiangsu Province with Talents, Nanjing University of Information Science and Technology, Nanjing 210044, China
d
Research Institute for Environment and Health, Nanjing University of Information Science and Technology, Nanjing 210044, China

H I G H L I G H T S G R A P H I C A L A B S T R A C T

• Direct environmental regulation show

significant positive effects on green
technology innovation by using micro
data.
• The marginal effect of direct environ-
mental regulation on green technology
innovation was 7.2%.
• Ownership and industry heterogeneity
of direct environmental regulation’s im-
pact on green technology innovation are
explored.

a r t i c l e i n f o a b s t r a c t

Article history: Faced with the dual constraints of resources and the environment, green technology innovation has become an
Received 30 April 2020 important measure to solve the development challenges of heavily polluting industries. From the perspective of
Received in revised form 5 July 2020 institutional regulation theory, this paper studies the impact of direct environmental regulation on green tech-
Accepted 6 July 2020
nology innovation in Chinese listed companies of heavily polluting industries by using the Panel Poisson fixed ef-
Available online 11 July 2020
fect model. Besides, the heterogeneity of ownership and industry is discussed. The results indicate that direct
Editor: Huu Hao Ngo environmental regulations exert a strong and significant incentive effect on green technology innovations in
heavily polluting industries. Regarding the heterogeneity of enterprise ownership, direct environmental regula-
Keywords: tions were found to be more significant to the green technology innovations of state-owned listed companies in
Direct environmental regulation such industries. Considering industry heterogeneity, compared with labor-resource intensive industries, direct
Green technology innovation environmental regulation can effectively encourage green technology innovations in technology-capital inten-
Heavily polluting industry sive industries. This study provides a policy basis for promoting environmental governance and green technology
Enterprise ownership heterogeneity innovation in China's heavily polluting industries.
Industry factor density heterogeneity
© 2020 Elsevier B.V. All rights reserved.
Marginal effect

⁎ Correspondence to: B. Zhu, School of Business, Nanjing University of Information Science and Technology, Nanjing 210044, China.
⁎⁎ Correspondence to: H. Zhang, School of Business, Guilin University of Electronic Technology, Guilin 541004, China.
E-mail addresses: bangzhuzhu@yeah.net (B. Zhu), 1705201012@mails.guet.edu.cn (H. Zhang).

https://doi.org/10.1016/j.scitotenv.2020.140810
0048-9697/© 2020 Elsevier B.V. All rights reserved.
2 X. Cai et al. / Science of the Total Environment 746 (2020) 140810
1. Introduction
The energy consumption and pollution emissions caused by the pro-
cess of industrialization present a serious threat to the Chinese ecologi-
cal environment. In particular, the heavily polluting industry has
become a key source of environmental pollution owing to its high en-
ergy consumption and high levels of pollution. Therefore, the effective
control of the emissions from such heavily polluting industries would
play a key role in improving environmental quality and promoting
green development in China. Green technology, as a new technology
paradigm, can save resources, avoid or reduce environmental pollution
and realize the recycling of raw materials, and wastes (Nicolò Barbieri
et al., 2020). In addition, green technology is also an important way to
solve the problem of excessive resource consumption and serious envi-
ronmental pollution. However, there is a high degree of fungibility be-
tween green and non-green technologies. Without external
intervention, most enterprises in heavily polluting industries are un-
willing to take the initiative to carry out green technology innovation
owing to the market scale effect and the initial productivity advantage
of non-green technologies, thus leading to an increasing degree of envi-
ronmental pollution, and making it imperative to guide and encourage
enterprises' green technology innovation in heavily polluting industries
through the external force of government environmental regulation
(Acemoglu et al., 2012; Wang and Zhang, 2018).
As the world's largest developing country and the second-largest
economy, China is confronted with the severe environmental pollution
in the process of its leapfrog economic development. How to achieve
rapid economic growth and, effectively control environmental pollution
is a major challenge facing Chinese environmental regulation in the new
era. Since 1979, when the Chinese government first promulgated the
Environment in the People's Republic of China Protection Law (for
trial implementation), a relatively complete system of environmental
regulations has been established. At present, this system includes ap-
proximately 26 relevant laws, more than 50 regulations, about 800 stan-
dards, and more than 660 normative legal documents, mainly covering
pollution prevention and control, the protection of natural resources
(Huang and Shi, 2014). For an extended period of time, relatively
loose environmental regulations have been made. Under long-term
and relatively loose environmental regulations, industrial technology
advancement largely replies to non-green technology innovations
(Xiu, 2016), making industry also presents characterized by high energy
consumption and heavy pollution in China. In recent years, with the
promulgation of the new environmental protection law, direct environ-
mental regulation has been strengthened in China. According to statis-
tics from the Chinese Ministry of Ecology and Environment, 186,000
administrative penalty cases were imposed in China in 2018, with
fines of 15.28 billion yuan, representing a 32% increase in fines over
2017, and 4.8 times that before the implementation of the new environ-
mental protection law in 2015. Consequently, strengthening direct en-
vironmental regulations has become key to China achieving
environmental governance effectively.
While a large number of empirical studies have found that direct en-
vironmental regulation has a positive effect on controlling pollutant
emissions (He and Pan, 2017; Shapiro and Walker, 2018), the academic
circles have reached inconsistent conclusions on whether direct envi-
ronmental regulation can promote green technology innovation.
Based on the conventional economic theory, indirect environmental
regulations mainly urge enterprises to reduce their environmental pol-
lution via price mechanisms. Compared with command-oriented direct
environmental regulations, they have greater flexibility and more
strongly encourage enterprises actively to seek the most effective solu-
tions, and enterprises can profit from the excess. Therefore, direct envi-
ronmental regulations have fewer incentive effects on green technology
innovations, with the greatest motivation to produce innovations seen
to be provided by indirect environmental regulatory mechanisms such
as environmental taxes and tradable emission allowances (Jaffe and
Stavins, 1995; Brunnermeir and Cohen, 2003; Jaffe et al., 2004; Eiadat
et al., 2008; Johnstone et al., 2010; Villegas-Palacio and Coria, 2010;
Hattori, 2017). However, based on the generalized Hicks theory, it can
be argued that the incentive enacted by direct environmental regula-
tions to implement green technology innovations comes from the hid-
den cost of enterprise compliance. Since enterprises maintain
statutory emission standards at the lowest possible cost to them, there
also exists an incentive effect of technological innovations (Newell
et al., 1999; Montero, 2002; Zhou et al., 2011). As a consequence,
green technology innovations can also be significantly stimulated by di-
rect environmental regulatory mechanisms (Popp, 2003; Yuan et al.,
2017; Klemetsen et al., 2018; Ramanathan et al., 2018; Zhang et al.,
2018).
However, existing literature focuses on discussing the impact of di-
rect environmental regulation on green technology innovation from
the regional and industrial levels (Johnstone et al., 2010; Villegas-
Palacio and Coria, 2010; Hattori, 2017; Cai and Li, 2018), which cannot
directly reflect the green technology innovation behavior of enterprises
under the pressure of direct environmental regulation. Only a little liter-
ature focuses on the enterprise level (Popp, 2003; Klemetsen et al.,
2018; Ramanathan et al., 2018), mainly in the context of the western
developed economic system. There exists a substantial gap in terms of
industrial modernization between China and developed countries: de-
veloped countries have generally realized their process of industrial
modernization and established a sound environmental regulatory sys-
tem, while China is still in the process of this modernization, with the
country's environmental regulatory system yet to be perfected (Li,
2019). Therefore, there is a lack of literature on how direct environmen-
tal regulation affects enterprises' green technology innovation in the
context of China. Meanwhile, the heterogeneous effect of direct envi-
ronmental regulation on enterprises' green technology innovation has
not been explored, and the practical significance of the research results
needs to be improved. In addition, the scale of China's economy has far
surpassed that of developed countries outside the United States, which
has meant that large industrial enterprises and their extensive geo-
graphical distribution make direct environmental regulations more
challenging in China. In recent years, the Chinese government has is-
sued a series of strict direct environmental regulation measures, such
as shutting down enterprises with high energy consumption and
heavy pollution. Will these regulation measures have a positive impact
on the green technology innovation of heavily polluting enterprises?
This paper aims to answer this question by examining the impact of di-
rect environmental regulation of China on green technology innovation
in heavily polluting industries. It is hoped that the results will provide
meaningful, practical significance for developing countries to realize
the green transformation of their own heavily polluting industries.
The main contributions of this paper are as follows. Firstly, the pre-
vious researches mostly have focused on industry and regional levels,
but seldom use data at the micro-level. This paper collects direct envi-
ronmental regulation and green patent data at the enterprise level in
China for the first time, which is a complement to existing researches.
Secondly, this paper estimates the marginal effect of direct environmen-
tal regulation on the incentive of green technology innovation in heavily
polluting industries on the basis of the direct environmental regulation
mechanism effectively stimulating the green technology innovation.
Thirdly, considering industry and firm characteristics, this study exam-
ines the heterogeneous impact of the direct environmental regulation
on green technology innovation in heavily polluting industries in
terms of firm's ownership and industry factor density, thus more fully
revealing the comprehensive effect of direct environmental regulation
on green technology innovation.
The remainder of this paper is organized as follows. Section 2 de-
velops the research hypothesis of this study through an analysis of the
relevant theory and literature. The econometric models, data sources,
and the measurement of the variables are introduced in Section 3. The
the regression results and the robustness tests are presented in
 X. Cai et al. / Science of the Total Environment 746 (2020) 140810
Section 4. The final section provides conclusions and suggests some pol-
icy implications.
2. Research hypothesis
2.1. Direct environmental regulation and green technology innovation
In past development patterns, the primary means of corporate pollu-
tion control in China has been to require enterprises to establish end-of-
pipe treatment measures, such as installing decontamination equip-
ment at the end of the production process, and so on (Liu, 2014). Enter-
prises mainly obtain high profits through the competitive advantages
brought by non-green technology innovation to offset the increased
pollution control expenditure. With the continuous tightening of direct
environmental regulation in China, the defects of high cost and low ef-
ficiency of end-of-pipe treatment measures begin to appear. The indus-
try is increasingly utilizing green technology innovations to reduce the
amount of energy consumption and materials used in the production
process, and so accelerate the implementation of clean production
(Machiba, 2010). Different from non-green technology innovations,
green technology innovations can improve the intermediate production
process while reducing pollution, generally reducing corporate pollu-
tion control and enterprise operating costs, and improving enterprise
competition (Saunila et al., 2018). Although enterprises that apply
non-green technology innovations can avoid the investment and risk
inherent in the innovation process, with the tightening of direct envi-
ronmental regulations and the expansion of the scale of the enterprise,
they will have a strong incentive to carry out green technology innova-
tions to reduce emission levels. This then serves to mitigate or offset the
environmental costs brought about by the government's compulsory
restrictions through direct environmental regulations and, most impor-
tantly, to maximize profits. Moreover, based on Hicks' theory of induc-
ing innovation, more stringent regulations can lead to price changes of
input factors and increases in environmental costs, forcing enterprises
to adopt green technology innovations to deal with problems. There-
fore, more stringent direct environmental regulations can be said to
place greater pressure on enterprises in heavily polluting industries
with regard to environmental legitimacy, and better stimulate them to
undertake green technology innovations. Hence, the following hypoth-
esis is proposed:
Hypothesis 1. (H1): Direct regulations can promote green technology
innovations in heavily polluting industries, and stricter direct environ-
mental regulation can promote green technological innovation
significantly.
2.2. Direct environmental regulation and green technology innovation un-
der the heterogeneity of ownership
Direct environmental regulation is a hard constraint of the Chinese
government, and both state-owned and non-state-owned enterprises
must implement it. However, direct environmental regulation gener-
ates different incentives for green technology innovation in state-
owned and non-state-owned enterprises, respectively, due to differ-
ences in their governance models and innovation characteristics. Com-
pared with non-state-owned listed companies in China, state-owned
listed companies are usually more likely to be subject to government in-
tervention, for which reason their organizational goals are often consis-
tent with major national strategic and policy (Lin et al., 2004; Qian et al.,
2018). In recent years, with the concepts of sustainable development
and green development rising to a new level of national strategy, Chi-
nese state-owned listed companies have been taking on greater social
expectations and responsibilities; however, they have also gained
more subsidy support from the government to help them respond to
the risk in the process of pushing for green technology innovations
3
(Sun et al., 2017). Therefore, when faced with compliance pressure
from direct environmental regulations, the power and resources for
the green technology innovations of state-owned listed companies in
heavily polluting industries are more abundant than those in non-
state-owned enterprises, and they tend to reduce the level of pollution
emissions as well as environmental costs through such innovations.
For their part, Chinese non-state-owned listed companies undergo less
government intervention, and their organizational behaviors tend to
be more flexible. They also pay more attention to their own economic
effects because, when confronted with the legal pressures exerted by di-
rect environmental regulations, they will take their self-resource re-
serve into account in order to balance the compliance costs of green
technology innovations and non-green technology innovations so as
to achieve benefit maximization. Green technology innovation not
only requires extra R&D investment but also implies the taking on of
new risks, while non-green technology innovations avoid these uncer-
tainties and costs. Therefore, Chinese non-state-owned listed compa-
nies in heavily polluting industries are more willing to choose non-
green technology innovation approaches. Hence, this paper puts for-
ward the following hypothesis:
Hypothesis 2. (H2): Compared with Chinese non-state-owned enter-
prises in heavily polluting industries, direct regulations are more effec-
tive in stimulating the green technology innovations of state-owned
enterprises.
2.3. Direct environmental regulation and green technology innovation un-
der industrial heterogeneity
Heavily polluting industries include mining, metallurgy, paper, and
thermal power, among others. Given the pollution intensity of these in-
dustries, as well as their innovation ability, and factor intensity and
other differences, direct environmental regulation plays a different
role in promoting green technology innovation in the different types
of industries. From the factor intensity perspective, this paper refers to
the research conducted by Han and Qian (2008) and Zhao and Yu
(2012), and further subdivides heavily polluting industries into two
groups – technology-capital intensive and labor-resource intensive –
in order to examine industrial heterogeneity.
Technology-capital intensive industries, whose patent intensity and
innovation capability, as well as green innovation efficiency and perfor-
mance, are superior to labor-resource intensive industries, are able rap-
idly to transform the advantages of green technological innovations into
economic and competitive advantages (Zhu et al., 2018). Due to the
support of adequate capital factors, technology-capital intensive indus-
tries tend to invest more in R&D. Compared with labor-resource inten-
sive industries, the extrusion effect of direct environmental
regulations on the environmentally friendly R&D investment of
technology-capital intensive industries is small. Therefore, it can be
said that direct environmental regulations can stimulate green techno-
logical innovation behaviors in technology-capital intensive heavily pol-
luting industries. In their study, Wang and Zhang (2018) took Chinese
high-end manufacturing firms as the research sample, empirically find-
ing that direct environmental regulations have a significant positive in-
duction effect on green technology innovations.
Conversely, labor-resource intensive industries are low-tech inten-
sive. According to the theory of technological innovation, the price effect
will guide the technology innovations of labor-resource intensive indus-
tries in favor of saving on relatively expensive production factors, while
the market scale effect leads their technology innovations to the use of
relatively abundant production factors, driven by the goal of maximiz-
ing enterprise profits. Thus, the overall bias of technological innovation
in labor-resource intensive industries is formed by the interaction of the
price and market effects, ultimately leading to the lock-in effect of non-
green technological innovations in such industries. Stringent direct
4 X. Cai et al. / Science of the Total Environment 746 (2020) 140810

environmental regulations thus not only fail to spur enterprises in those regulated enterprises across the whole data period. Concerning the for-
industries to actively carry out green technology innovations but will mula developed by Klemetsen et al. (2018) Eq. (3), we define:
cause the inhibition of the latter by increasing the cost of pollution con- X  
trol and occupying the investment space of green technology innova- MEtotal ¼ MEit Leveli;t−1 ð3Þ
i;t
tions. Finally, it is difficult for direct environmental regulations to
stimulate green technology innovations in such labor-resource inten-
sive heavily polluting industries. Therefore, the following hypothesis is
proposed: 3.2. Data sources and variable descriptions

Hypothesis 3. (H3): Direct environmental regulations provide a stron- This paper uses enterprise-level panel data from 2011 to 2016,
ger incentive for green technology innovations in technology-capital in- which includes data sets of environmental patent applications, direct
tensive heavily polluting industries than in labor-resource intensive environmental regulations, and control variables. Among them, envi-
heavily polluting industries. ronmental patent applications were taken from the State Intellectual
Property Office (SIPO) of the People's Republic of China; the original
data measuring the degree of violation of direct environmental regula-
3. Methods
tions were taken from the Enterprise Environmental Performance Data-
base of the Institute of Public and Environmental Affairs (IPE)1; other
3.1. Selection of econometric model
economic variables were drawn from the CSMAR Data Service Center
and the Wind Financial Database.
The primary concern of the current paper is whether direct environ-
Since the datasets used were taken from multiple databases, the cur-
mental regulation can promote green technological innovation in
rent study consolidated the data in the following ways. Firstly, the data
heavily polluting industries, and the marginal effects of this promotion.
pertaining to branch and subsidiary companies in the SIPO and IPE cor-
Given that the proxy variable measuring green technology innovations
porate environmental regulation databases were merged with the data
is the number of applications for environmental patents, which is a
of their listed companies. Then, the listed company name was used as
count variable, the following panel counting model was set.
the unique identification code by which to match the SIPO, IPE Enter-
X     prise Environmental Regulation Database, and financial database,
ln ðEPit Þ ¼ α m I Leveli;t−1 ¼ m þ β∙I Riski;t−1 ¼ 1 þ x0i;t−1 γ þ ν i þ εi
m∈f1;2g
which were then merged into the final data set.
ð1Þ
3.2.1. Measurement of green technology innovation
Environmental patent applications were here used as a measure of
Here, let I(∙) be an indicator function, when Level = 1, Level = 2 and
green technology innovation, as denoted by the abbreviation ‘EP’. In
Risk = 1, I(∙) = 1. Conversely, when Level = 0 and Risk = 0, I(∙) = 0.
order to upgrade their core competitive ability, enterprises often apply
xit−1′ is the other factors that affect innovations, including dummy var-
for patents in order to maintain their technological advantages and so
iables of year. Considering the lagging effect of the input and output of
attract greater profits. Therefore, the number of patent applications
innovation activities, this paper selects the observed values of leveli, t
may be seen as the most direct reflection of innovative activity. More-
−1, Riski, t−1 and xi, t−1′with a lag of one year (excluding dummy vari-
over, the authorization of invention patents, which is closely vetted by
ables for years), which also eliminates the reversed causality effects
patent examiners, possesses strong practicability, novelty, and creativ-
brought out by the degree of violation, given that enterprises reduce
ity. Since patent applications are usually made for commercial purposes,
pollutant emissions by the improvement of green technologies.
both their application and maintenance require a long time and high
A potential problem is that if an unobserved variable not only affects
costs, mirroring the applicant's belief that the patent can bring them
the dependent variable EPit but also the independent variable, in this
the expected economic returns (Hasan and Tucci, 2010). Therefore,
case, leveli, t−1, this can lead to a problem of endogeneity that, in turn,
even patent applications for inventions that have not been approved
causes the parameter estimation in the formula (1) to deviate. However,
still represent the creative work achievement of the inventors. Many
the current instrumental variables related to direct regulations, such as
studies have also shown that the number of patent applications for in-
the frequency of law enforcement (Carrión-Flores and Innes, 2010), are
ventions and patent licenses have little significant effect on the results
often not completely exogenous and their effectiveness is questionable.
(Ji and Li, 2015; Klemetsen et al., 2018). The process can take at least
This paper adopts the fixed effect model to allow νi to be correlated with
two years from the point of making a patent application for an invention
the explanatory variable, thereby alleviating the endogenous problem
to the point of substantive checks, given the innovative nature of such
of the model.
patents. Measuring green technology innovation in terms of the amount
Since the degree of violation is a categorical variable, the regression
of environmental invention patents authorized led to the exclusion of a
coefficient αm in formula (1) only reflects the influence of no violations,
large number of granted patents over the past two years. Therefore, pat-
minor violations, and serious violations on green technology innova-
ent applications for environmental inventions were used to measure
tions, thus not including the marginal effect of the degree of violation
green technology innovations. Combined with the environmental pat-
on green technology innovations. Referring to the calculation formula
ent IPC classification number issued by the World Intellectual Property
of the marginal effect of the counting model suggested by Cameron
Organization (WIPO), for the purposes of this paper, we retrieved and
and Trivedi (2014), the marginal effect in the current paper can be
matched the number of environmental patent applications filed by
given by the following formula:
  1
The Institute of Public and Environmental Affairs (IPE) is a non-profit environmental
∂E P it jleveli;t−1 ¼ 0; xi;t−1 ; ν i   organization registered in Beijing in 2006. The IPE enterprise environmental monitoring
MEit ðmÞ ≡   ¼ α m E P it jleveli;t−1 ¼ 0; xi;t−1 ; ν i
∂I leveli;t−1 ¼ m records include the name of the enterprise, the type of illegal activity in the records and
the reasons for this activity, the type of punishment, the amount fined, the source of the
ð2Þ
monitoring records, the year of the recording, and the reporting time. The database con-
tains 1.55 million environmental monitoring records, mainly taken from the websites of
As can be seen from the above formula, when leveli, t−1 changes from the provincial, prefectural, municipal and other municipal environmental protection de-
partments, as well as from the official website of the Government of the People's Republic
0 to m, MEit(m)is approximately equal to the increase in λit. By summing of China, which are cited by mainstream media as in the environmental monitoring infor-
up MEit(leveli, t−1), an expression can be obtained for the total increase mation disseminated by government regulators, official microblogs and other official
in the expected number of patents derived from violations among all channels.
 X. Cai et al. / Science of the Total Environment 746 (2020) 140810
each listed company from samples in the SIPO database of the State In-
tellectual Property Office of China.
3.2.2. Measurement of direct environmental regulations
On the basis of its laws and regulations on environmental protection,
the Chinese government has formed a five-level Environmental Man-
agement Agency from central to local level, as well as a comprehensive
regulatory system including direct and indirect regulation. The direct
regulation includes the System on Three Simultaneity, environmental
impact assessment, cleaner production and circular economy system,
as well as term governance and non-tradable emission permits, which
uses mandatory means to control the discharge of pollutants in enter-
prises to achieve the purpose of environmental protection.
The Ministry of Ecological Environment ensures strict compliance
with direct environmental regulatory standards through general law
enforcement, special law enforcement and inspection-supervision. Gen-
eral law enforcement mainly involves the daily regulation of pollution
sources, construction projects, and ecological protection areas; the reg-
ulation frequency is shown in Table 1. The special law enforcement and
regulation offices focus on the damage to public health, highlight envi-
ronmental issues, and act to form a great deterrent to environmental vi-
olations. The Ministry of Ecology and Environment also inspects the
results of illegal environmental governance to ensure that environmen-
tal pollution is rectified. Therefore, it can reflect the purpose and effec-
tiveness of direct environmental regulations well to take the degree of
corporate violation as proxy variable regard in China.
In this paper, the level of violation is defined as an ordinal variable
with three values – 0 (no violations), 1 (minor violations), and 2 (seri-
ous violations) – to evaluate the degree of violation relative to penalties
imposed on enterprises. The environmental protection department usu-
ally passes different deterrents, such as the rectification of violations
and administrative penalties for environmental protection, according
to the degree of an enterprise's violation. Among these measures, the
rectification of violations is applicable to minor violations and does
not involve any fines. Only when the enterprise is in serious violation
of environmental regulations does it incur administrative penalties,
and a fine is imposed. Therefore, this paper through the penalty cate-
gory and the number of fines to measure the level of enterprise viola-
tions. The deterrent power of direct environmental regulation also
comes from the regulation of the rectification of enterprises that are
subject to punishment. For enterprises that have not yet undergone
their rectification and reform, the Environmental Protection Depart-
ment administers more severe penalties, such as restricting and
suspending production. According to the provisions of the Administra-
tive Penalty Measures for Environmental Protection in China, a fine of
50,000 yuan (or the value of equivalent items) for a legal person or
other organizations is considered to be a substantial fine (See Table 1).
All raw data for the assessment is from regulatory records in the Insti-
tute of Public and Environmental Affairs (IPE) Enterprise Environmental
Performance Database.
Table 1
Frequency of direct environmental regulation.
Regulation category Regulation frequency
Key pollution sources and their pollution prevention No less than once a month
facilities
General pollution sources and their pollution No less than once a season
treatment facilities without penalty
Construction projects, time-limit abatement project No less than once a month
Marine ecology, nature reserves, ecological No less than once a season
demonstration areas, comprehensive treatment without penalty
projects, smoke and dust control areas, noise
compliance areas
Publicly reported sources of pollution Prompt on-site inspection
This information has been taken from the website of the Ministry of Ecology and
a
Environment of China.
a No violations(level = 0)
http://www.mee.gov.cn/home/rdq/jdzf/hjzf/zfgl/201605/t20160522_341597.shtml.
5
A shown in Table 2, this paper uses the fine threshold of 50,000 yuan
as the evaluation limit. The raw data for all assessments were obtained
from the regulatory records held by the IPE Corporate Environmental
Performance Database. Fig. 1 illustrates the trend of violations of compa-
nies in the sample that were subject to direct environmental regulation
from 2011 to 2016. From this, it can be seen that with the strengthening
of environmental regulations, enforcement, and penalties, the propor-
tion of both serious and minor violations by enterprises increased signif-
icantly since 2015.
It is necessary to consider that there is a vast number of industrial
enterprises in China and their distribution is quite wide, meaning that
timely and effective regulation by the environmental protection depart-
ment brings with it high regulatory costs to each enterprise. As such, the
Ministry of Ecology and Environment ranked the pollutant discharges of
industrial enterprises from high to low, set the total amount of pollution
emissions accounting for 65% of total industrial emissions as a filter cri-
terion, and released the names of the key national enterprises that are to
be monitored over the following year. The Ministry of Ecology and Envi-
ronment collected pollutant discharge information and strengthen the
enforcement of regulations for those selected enterprises, in order to ef-
fectively reduce their emissions. The enterprises that are on the national
key monitoring list are often highly hazardous to the environment, and
the probability of their incurring penalties for environmental violations
will be greatly raised, which may motivate the given company to under-
take a process of rectification prior to bear the consequence. In light of
this, it is necessary to control the impacts of the risks of non-
compliance on green technology innovations. This paper measures the
high risk of violation of companies on the national key monitoring list
and the low risk of violation among other companies. The national key
monitoring list was taken from the data center of the Ministry of Ecol-
ogy and Environment.
3.2.3. Measurement of control variables
National policy factors and other factors that influence firm innova-
tions, including government subsidies, environmental information dis-
closure, enterprise size, profit margin, redundant resources, employee
education, capital intensity, and enterprise age.
3.2.3.1. Government subsidies. Green technology innovation has negative
externalities of environmental pollution and positive externalities of
knowledge spillover (He, 2014). The double externalities make it diffi-
cult for enterprises to realize green technology innovation by relying
on the market itself. Government subsidy policy has become an impor-
tant factor affecting enterprises' green technology innovation. In this
paper, the government subsidy is measured by dividing the amount of
government subsidy by the total assets.
3.2.3.2. Environmental information disclosure. Due to the information
asymmetry between enterprises and the public in environmental pro-
tection, environmental information disclosure can weaken the informa-
tion asymmetry, and the public's environmental right to know,
participate in and supervise are guaranteed. External stakeholders can
influence enterprises' green technology innovation activities through
the capital market. This paper uses virtual variables to control the fac-
tors of environmental information disclosure to green technology
innovation.
Table 2
Evaluation of the level of violation of listed companies.
Level of violation Evaluation boundary
Serious violations Penalty≥￥50,000 and limits on production, stop
(level = 2) production
Minor violations Penalty≤￥50,000 and illegal acts ordered to be
(level = 1) rectified without penalty
No violations record
6 X. Cai et al. / Science of the Total Environment 746 (2020) 140810
Fig. 1. Trends of violations of enterprises under direct environmental regulation.
3.2.3.3. Enterprise scale. Previous studies have shown that large-scale en-
terprises have more advantages in terms of innovations, mainly with re-
gard to the advantage of R&D capital investment (Wang et al., 2017).
Therefore, using the method of dividing the scale of an enterprise with
its main business income, as provided by the National Bureau of Statis-
tics of China, this paper measures the scale of each enterprise according
to the main business income of each listed company.
3.2.3.4. Profit margins. R&D investment is the core input factor of techno-
logical innovations, and has an important impact on the innovation out-
put. Sufficient investment in R&D can bring about an innovation output.
Therefore, a better profit margin can bring in more R&D investment to
the company (Cohen, 2010; Li et al., 2017).
3.2.3.5. Intensity of R&D investment. There is a close relationship between
R&D input intensity and technological innovation output. In this paper,
annual R&D input is divided by operating income to measure R&D input
intensity.
3.2.3.6. Slack resources. There exist various types of slack resources in en-
terprises. The existing research generally divides them into non-
precipitated and precipitated slack resources. Non-precipitated slack re-
sources have high liquidity and flexibility, and enterprises can easily
configure them for innovative activities, while the liquidity and flexibil-
ity of precipitated slack resources are poor, making it difficult for enter-
prises to cope with the rapidly changing external environment. This
means that changes in the external environment will trigger enterprises
to use non-precipitation slack resources to support activities that are
relevant to innovations. In view of this, the current study took non-
precipitated slack resources as the control variables that affect green
technology innovations. Referring to the measurement methods of
non-precipitated slack resources developed by Iyer and Miller (2008),
non-precipitated slack resources are here measured according to the
enterprises' current ratio, expressed as a financial ratio. The calculation
formula is as follows:
Current ratio ¼ Current assets∕Current liabilities
3.2.3.7. Human capital. We measure the human capital of listed compa-
nies by the proportion of their employees who hold a bachelor's degree
and above, as denoted by the abbreviation 'Humcap'. Human capital in-
vestment is one of the most important factors in the process of enter-
prise innovation activities. High-quality human capital can
appropriately integrate and utilize enterprises' internal and external re-
sources to make breakthroughs in technological innovations (Cohen,
2010; Wang and Wang, 2016).
3.2.3.8. Capital intensity. Capital intensity is measured by the per capita
fixed assets of employees. In general, high capital-intensive companies
have a high proportion of fixed assets and specialized assets, which
are difficult to recover and, later, come with sunk costs. Therefore, com-
pared with other companies, high capital-intensive companies tend to
have stronger incentives to apply for patents to avoid losses in fixed as-
sets. The study by Berrone et al. (2013) confirms that companies with
larger assets are more likely to positively respond to direct environmen-
tal regulatory pressures through green innovation behaviors.
3.2.3.9. Age of enterprise. The empirical research results on the influence
of enterprise age on technological innovation are controversial. Those
that survive are more likely to use the experience of innovation, but
younger firms may be more creative. Therefore, this paper uses enter-
prise age to control the influence of experience on innovation.
3.3. Sample selection and analysis
Heavily polluting industries have always been the focus of direct en-
vironmental regulation by environmental protection departments due
to their large pollution emissions. This paper thus takes heavily pollut-
ing industries as an example by which to examine the impact of direct
environmental regulation on green technology innovation. We chose
A-share listed companies in heavily polluting industries from 2011 to
2016 in the Shanghai and Shenzhen Stock Exchange as the initial re-
search sample.2 According to Wang and Zhang (2018) and Li et al.
(2019), the initial samples were screened according to the following
conditions: (i) Excluding listed companies with financial abnormalities,
2
The selection of polluting industries was based on the “Guidelines for Environmental
Information Disclosure of Listed Companies (Draft for Comment)” issued by the Ministry
of Environmental Protection in 2010 and the industry code division of the guidance on in-
dustry classification of listed companies revised by China Securities Regulatory Commis-
sion (CSRC) in 2012.
 X. Cai et al. / Science of the Total Environment 746 (2020) 140810 7

such as ST, PT, and SST*; (ii) Excluding listed companies whose main from the punishment of violations during the sample inspection period.
business has changed during the period of sample rejection; (iii) Ex- The summing up of marginal effect in the FE models is 718, which is
cluding listed Companies with a serious lack of variables; (iv) Excluding equivalent to 7.2% of all environmental patent applications, which was
listed companies that withdrew from the Stock Exchange during the in- slightly higher than the Norwegian study's result of 6.4% (Klemetsen
vestigation period3; (v) Excluding companies that be listed after 2012. et al., 2018).
The result was unbalanced panel data that included 447 listed According to the theory of institutional economics, institutions have
companies. the function of influencing and constraining organizational behavior (Li
Table 3 reports the descriptive statistical analysis of the sample var- et al., 2017). Direct environmental regulation is a kind of institutional
iables. Among these, the degree of violation (Level) is an ordered vari- constraint that the government imposes on the environmental behavior
able (0, 1, 2), and the risk of violation is a virtual variable (0, 1). The of enterprises. When regulatory standards are low, the punishment of
average value of green invention patent applications in the sample can the law enforcement to the enterprise cannot affect the enterprise pro-
be seen to be 0.46, and the respective minimum, median and maximum duction and management activities, relative to the green technology in-
values are 0, 0, and 7.08, which indicates a wide gap between the green novation, the costs and risks of negligible, it is difficult to affect the
technology innovations of the sampled enterprises. Most of the sampled enterprise stakeholders and decision-makers in the system pressure
enterprises have not actively carried out research and development (Chen and Zhang, 2017), makes technical progress of enterprises still
pertaining to environmental technology patents. According to the clas- prefer the green technology innovation. When the regulatory standards
sification of enterprise ownership, it was also found that the applica- are improved, the production suspension and production restriction
tions for invention patents made by state-owned listed companies and huge fines imposed by law enforcement authorities will directly af-
were twice as numerous as those made by non-state-owned listed com- fect the investment decisions of enterprises. To adapt to strict environ-
panies. According to the classification of enterprise ownership, heavily mental regulation standards and meet long-term profit maximization
polluting industries have more than twice as many green invention pat- needs, enterprises tend to increase investment in green technology in-
ents filed by listed companies as by non-state-owned listed companies. novation in order to take the lead in green technology innovation by im-
Therefore, it is necessary to explore whether direct environmental reg- proving production efficiency and changing production mode, thus
ulation can stimulate green technology innovation of enterprises in forming first-mover-advantage and seizing market share (Chen, 2008;
heavy pollution industries, especially to further investigate the impact Wang and Li, 2009). By changing the production efficiency and chang-
of differences under the heterogeneity of enterprise ownership. ing the production mode, green technology innovation makes the in-
crease of profit compatible with clean production, and its innovation
4. Results and discussion compensation effect far exceeds the input cost of green technology in-
novation (Guo and Licheng, 2020). Therefore, some enterprises with
Prior to estimating the Poisson regression model, this study con- minor violations are more inclined to achieve environmental standards
ducted multicollinearity tests on all explanatory variables; the results by non-green technology innovation, while others with serious viola-
show that the VIF value among all variables is much lower than 10, in- tions prefer the implementation of green technology innovations to
dicating that there was no problem with multicollinearity. Table 4 achieve environmental standards in heavily polluting industries. This
shows the results of the regression of direct regulations on green tech- also prompts the environmental regulatory department that the techni-
nology innovations, in which RE and FE respectively represent the ran- cal standards of pollutant emissions would be modified according to the
dom and the fixed effect model, and models (1) and (4) are the results trend of technological progress, which continues to provide incentives
of the whole sample regression. As the fixed effect model cannot esti- for innovation in heavily polluting industries.
mate explanatory variables that do not change with time, in order to With regard to the control variables, it can be seen from Table 4 that
test hypothesis 2, this paper applied the method of sub-sample regres- in the fixed effect model, the coefficients of enterprise scale, non-
sion to divide the sample into state-owned listed companies and non- precipitated slack resources and capital intensity are positive, and re-
state-owned listed companies. Models (2) and (5) represent the regres- spectively significant at the 1%, 5%, and 10% level, indicating that these
sion results for state-owned listed companies, while those of non-state- three factors have a positive and significant impact on green technolog-
owned listed companies are shown in models (3) and (6). ical innovations. Among these, the coefficient of enterprise size is the
most significant, indicating that larger companies tend to have an ad-
vantage in terms of such innovations. Environmental information dis-
4.1. The influence of direct environmental regulations on green technology
closure of the estimated coefficient is negative and significant,
innovations in heavily polluting industries
indicating that environmental information disclosure has an inhibition
effect on green technology innovation. The reason is that: the effective-
As can be observed from models (1) and (4) in Table 4, serious vio-
ness of the environmental information disclosure depends largely on
lations have a positive and significant impact on green technological in-
novations in heavily polluting industries. In models (1) and (4), the
respective estimated coefficients corresponding to serious violations Table 3
(Level = 2) are 0.449 and 0.315, and both are significant at the 1% Descriptive analysis of each variable (N = 446).
level. Compared with serious violations, the estimated respective coeffi- Variable Mean Sd Min Median Max
cients corresponding to minor violations (Level = 1) are 0.188 and
lnep 0.459 0.800 0 0 7.080
0.115, and are significant at the 1% and 10% level, respectively. The re- lnep of State-owned 0.665 0.983 0 0 7.078
sults showed that the coefficient and significance of serious violations lnep of Non-state-owned 0.305 0.588 0 0 4.466
are higher than those of minor violations, thus validating the rationale Level 0.285 0.589 0 0 2
of hypothesis H1, which posits that the incentive effect of serious viola- Risk 0.334 0.472 0 0 1
govsub 0.544 0.800 0 0.331 15.382
tions on green technology innovations is greater than that of minor vio- lnscale 3.337 1.497 0.090 3.140 10.27
lations. Table 4 also provides the summing up of the marginal effect Humcap 0.191 0.121 0 0.170 0.860
(MEtotal) on the number of environmental patent applications resulting Slack 2.943 5.638 0.094 1.550 190.869
Profit 0.086 0.157 −2.680 0.068 2.073
3 Intensity 2.722 2.553 0.010 2.630 52.61
Since the reason for the delisting of listed companies may be related to the random
lncapital 12.899 0.902 4.830 12.81 17.31
disturbance items, the model may have encountered problems of endogeneity. We
lnage 2.772 0.302 0 2.773 3.664
attempted to avoid this problem by eliminating the listed companies that were delisted
envdis 0.357 0.480 0 0 1
during the sample inspection period.
8 X. Cai et al. / Science of the Total Environment 746 (2020) 140810
the part of the credibility of and disclosure mechanism (Huang and
Chunna, 2012), at present listed firms to carry out environmental re-
sponsibility ability weak in China (Xu et al., 2018), not to quantify the
low quality of the environment of the enterprises revealed information
(Yang et al., 2020), leading to environmental information disclosure
system pressure to the enterprise, stimulate the green technology
innovation.
The estimated coefficient of government subsidies is negative but
not significant, which may be due to the information asymmetry be-
tween the government and enterprises, so that enterprises may take ad-
vantage of the defects of information disclosure mechanism to cheat the
government subsidies. In addition, high R&D subsidies will indirectly in-
crease the price of R&D elements, thus increasing the cost of enterprise
R&D and reducing the efficiency of enterprise R&D. The research of Wen
and Huang (2020) also proves that government subsidies have no sig-
nificant effect on the output of invention patents. The estimated coeffi-
cient of human capital, profit margin, and R&D intensity emerged as
insignificant, indicating their lack of incentives for innovation. To sum
up, the strongest incentives for green technology innovation in enter-
prises are consistently provided by direct regulations on innovations
of green technologies.
4.2. Analysis of the heterogeneity of ownership
Models (2), (3), (5), and (6) in Table 4 examine the impact of direct
regulations on green technology innovations in listed companies with
different ownership. In the regression results of models (2) and (5),
the estimated coefficients corresponding to the serious violations
(Level = 2) of state-owned listed companies are 0.384 and 0.333, re-
spectively, and both are significant at the 1% level, indicating that seri-
ous violations have a positive and significant impact on green
technological innovations. The estimated coefficients corresponding to
minor violations (Level = 1) are 0.226 and 0.204, which are significant
at the 1% level, indicating that serious violations exert a greater incen-
tive effect in state-owned companies with regard to green technological
innovations. In the regression results of models (3) and (6), the esti-
mated coefficients corresponding to the serious violations of non-
state-owned listed companies are 0.645 and 0.363, which are significant
at the 1% level. The estimated coefficients corresponding to minor viola-
tions respectively are −0.001 and −0.159, which are not significant, in-
dicating that minor violations do not stimulate green technological
innovations in non-state-owned listed companies. In light of these find-
ings, different parameters of the degree of violation and the risk of vio-
lation were further tested, and the results are shown in Table 4.
Ultimately, it can be deduced that, compared with non-state-owned
listed companies, the degree of violation has greater incentives on the
green technology innovations of state-owned listed companies in
heavily polluting industries, thus validating hypothesis H2.
Environmental protection also belongs to the category of corporate
social responsibility. As China has promoted the construction of ecolog-
ical civilization at a national strategic level, direct environmental regula-
tion has become increasingly strict, and state-owned listed companies
in heavily polluting industries have been subject to greater intervention
and protection from the government level, and have a greater probabil-
ity of receiving financial subsidies (Yang, 2016). At the same time, com-
pared with non-state-owned listed companies, state-owned listed
companies are larger in scale and can bear the costs and risks brought
about by green technology innovation in heavily polluting industries.
This is consistent with the significant positive relationship demon-
strated between firm size and green technology innovation in Table 3.
Therefore, state-owned listed companies in heavily polluting industries
are more willing to improve their environmental performance through
innovations in order to avoid the potential costs caused by environmen-
tal violations.
Conversely, the development of non-state-owned enterprises in
heavily polluting industries requires greater investment in R&D and
the bearing of more risks in the process of green technology innovation,
owing to obstacles such as financing constraints and relatively little gov-
ernment support. Therefore, non-state-owned listed companies tend to
compare the costs of green technology innovation approach with the
non-green technology innovation approach to minimize the costs and
risks of achieving compliance. This is also related to previous loose di-
rect environmental regulations in China, which have not internalized
the environmental costs brought out by production, meaning that en-
terprises bear fewer environmental costs in order to achieve greater
economic benefits and that no environmental pressures on their opera-
tion are actually exerted. At the same time, non-state-owned listed
companies have begun to pay more attention to corporate social re-
sponsibility and the pursuit of economic benefits, weakening the incen-
tive effect of the degree of violation on green technology innovations.
Therefore, compared with those companies, the degree of violation
has a greater incentive effect on the green technology innovations of
state-owned listed companies in heavily polluting industries.
4.3. Analysis of industry heterogeneity
Referring to the studies of Han and Qian (2008), Zhao and Yu (2012),
and the SFC 2012 on the industry classification standards of listed com-
panies in China, this study adopted the density of industry elements as
the classification standard and divided the 18 heavily polluting indus-
tries of the listed companies in the sample into two types: technology-
capital intensive and resource-labor intensive.4 Table 5 shows the re-
sults of the grouped regression.
As can be observed from Table 5, the incentive effect of and the risk
of the degree of violation on green technology innovations are quite dif-
ferent in the two groups. In the fixed effect model, the coefficients for
serious violations and minor violations in technology and capital-
intensive industries are 0.343 and 0.122, respectively, and only the coef-
ficient of serious violations is significant at the 1% level, while the re-
spective estimated coefficients for serious violations in labor and
resource-intensive industries are 0.264 and 0.027, and only the coeffi-
cient of serious violations is significant at the 10% level. The results
show that, compared with minor violations, serious violations have a
greater incentive effect on green technological innovations in the
technology-capital intensive industry, verifying hypothesis H1 once
again. Serious violations and minor violations provide no incentives
for green technological innovations in labor and resource-intensive in-
dustries, whereas they have significant incentive effects on
technology-capital intensive industries, thus confirming hypothesis H3.
At present, capital-intensive industries are transforming their out-
dated growth patterns, and the contribution of technological progress
to industrial output is gradually rising, second only to the contribution
of capital investment (Zeng et al., 2012). Moreover, technology innova-
tions from technology-intensive industrial industries mostly reflect in-
ternal behaviors, such as enterprises paying more attention to the
effects of technology, knowledge and management on their output,
with the strong absorption of technology, and R&D capabilities (Yue
et al., 2017). As a result, both R&D investment and innovation capabili-
ties in technology-capital intensive industries are higher than those in
labor-resource intensive industries, which corresponds to the sample
data; namely, that the R&D intensity of technology-capital intensive in-
dustries is 3.19%, while that of labor-resource intensive industries is
only 1.95%. Moreover, R&D investment has been found to have a
4
Technology-capital intensive industries include petroleum processing and coking,
chemical materials and chemical products manufacturing, pharmaceutical manufacturing,
chemical fiber manufacturing, ferrous and non-ferrous metal, and calendaring industries.
Resource-labour intensive industries include coal mining and washing, oil and gas extrac-
tion, ferrous, non-ferrous metal, mining support activities, agricultural product and food
processing, wine, beverage and refined tea manufacturing, textile, leather and related
products, footwear, paper and paper products, non-metallic mineral product manufactur-
ing, generation and supply of electricity and heating.
 X. Cai et al. / Science of the Total Environment 746 (2020) 140810 9

Table 4
Regression results of direct regulatory impacts on green technology innovations.

Variable RE FE

(1) (2) (3) (4) (5) (6)

Whole sample State-owned Non-state-owned Whole sample State-owned Non-state-owned

Level = 1 0.188⁎⁎⁎ 0.226⁎⁎⁎ −0.001 0.115⁎ 0.204⁎⁎⁎ −0.159

(0.07) (0.08) (0.12) (0.06) (0.08) (0.11)
Level = 2 0.449⁎⁎⁎ 0.384⁎⁎⁎ 0.645⁎⁎⁎ 0.315⁎⁎⁎ 0.333⁎⁎⁎ 0.363⁎⁎⁎
(0.09) (0.10) (0.17) (0.08) (0.10) (0.14)
Risk = 3 0.448⁎⁎⁎ 0.485⁎⁎⁎ 0.398⁎⁎ 0.139 0.239⁎ −0.026
(0.11) (0.14) (0.17) (0.11) (0.14) (0.18)
govirsub 0.016 0.057 −0.144 0.012 0.090⁎⁎ −0.274⁎⁎
(0.05) (0.05) (0.09) (0.06) (0.04) (0.12)
lnscale 0.288⁎⁎⁎ 0.294⁎⁎⁎ 0.297⁎⁎⁎ 0.270⁎⁎⁎ 0.352⁎⁎⁎ 0.004
(0.03) (0.04) (0.07) (0.09) (0.12) (0.13)
Humcap 0.347 0.114 0.688 −0.083 −0.427 0.997
(0.41) (0.49) (0.69) (0.43) (0.35) (1.28)
Profit 0.117 0.168 0.036 0.063 0.067 −0.014
(0.13) (0.15) (0.31) (0.13) (0.13) (0.35)
Intensity 0.022 0.046 0.010 −0.007 0.025 −0.036
(0.02) (0.03) (0.03) (0.03) (0.03) (0.04)
Slack −0.003 −0.023 0.003 0.023⁎ 0.021 0.027⁎⁎
(0.02) (0.04) (0.02) (0.01) (0.03) (0.01)
lncapital 0.182⁎⁎⁎ 0.130⁎ 0.266⁎⁎⁎ 0.184⁎⁎ −0.000 0.339⁎⁎
(0.06) (0.07) (0.09) (0.09) (0.10) (0.14)
lnage −0.289 −0.515⁎⁎ −0.231 −1.081 −0.158 −2.012⁎
(0.18) (0.24) (0.27) (0.81) (1.13) (1.07)
envdis −0.141 −0.137 −0.113 −0.218⁎⁎ −0.083 −0.588⁎⁎⁎
(0.09) (0.12) (0.15) (0.09) (0.11) (0.16)
Year fix effect Control Control Control Control Control Control
N 2651 1137 1514 1815 889 923
MEtotal 1030 469 578 718 395 334
Number of patent applications 9893 8657 1236 9893 8657 1236

The numbers in parentheses are standard errors; in order to eliminate the effect of heteroscedasticity on the econometric model, cluster-robust standard errors are used in all model
estimates.
⁎ p b 0.1.
⁎⁎ p b 0.05.
⁎⁎⁎ p b 0.01.

significant positive impact on the efficiency of green technology innova-
tions in Chinese high-tech industries (Wang et al., 2016), meaning that
the efficiency of such innovation in technology-capital intensive indus-
tries is much higher than that in labor-resource intensive industries, in-
dicating that the former industries can quickly develop their
competitiveness. As a consequence, companies in technology-capital in-
dustries are more willing to deal with the pressures of direct environ-
mental regulations on their green technology innovations, which also
suggests that direct environmental regulations do not crowd out R&D
investment in technology-capital intensive industries, including green
innovation inputs, but have, instead, contributed to the output of
green technology innovation in such industries. Therefore, among
technology-capital intensive, heavily polluting industries, the relation-
ship between direct regulations and green technology innovations can
be described as the “Innovation Compensation Hypothesis”.
The development of labor-resource intensive industries is highly de-
pendent on labor and natural resources. Owing to the features of labor
and resource endowment in these industries, there is a lower demand
for technological innovation. This inhibits the improvement of the inno-
vation level of these industries, making their development not only easy
prey to the low-end technology locking status, but also to fallin into the
state of structural locking and factor input locking. Thus, the development
of these industries is mainly cost-driven. Moreover, the costs of decon-
tamination in such industries are increased by the degree of violation
and the risk of violation, producing the “crowding out effect”, especially
on those with less R&D investment. Li et al. (2013) have also found that
low levels of technological innovation have a negative impact on the rela-
tionship between environmental regulations and the green transforma-
tion of industries. Given the low level of technological innovation in
labor-resource intensive industries, the probability of the successful re-
search and development of green technology is small, and the lower
R&D investment also makes it difficult to meet the requirements of
green technology innovations; conversely, end-of-pipe treatment tech-
nologies are often easy to imitate and are cost-effective, thereby avoiding
the capital investment and R&D risk of green technology innovations.
Therefore, when facing the compliance costs brought about by direct en-
vironmental regulations, enterprises are more willing to use end-of-pipe
pollution control rather than green technology innovations, in order to
avoid such costs. It also shows that in labor-resource intensive heavily
polluting industries, the relationship between direct environmental regu-
lations and green technology innovations is regarded as the “Follow the
Cost Hypothesis”.
4.4. Further robustness test
4.4.1. Negative binomial regression
Table A1 presents the results of the further robustness tests in this
paper. We consider that the conventional Poisson regression must satisfy
the assumption that expectations and variances are equal, otherwise the
model may be over-decentralized. Although the estimation results of the
Poisson fixed effect model are consistent, the estimation efficiency will
be reduced. Therefore, the negative binomial fixed effect model is used
in Table A1, where the regression coefficient and significance can be
seen to be consistent with the estimation of Poisson's fixed effect model.
4.4.2. Zero-inflated Poisson regression
Considering the presence of a large number of “0” values in the sam-
ple, which may have emerged owing to sample selection deviation, this
study also estimated Eq. (2) by applying a Zero-inflated Poisson Regres-
sion, whose idea is similar to the method of the two-stage model pro-
posed by Heckman (1979). The binary selection model is adopted at
the first stage, taking zero or a positive integer; the second stage entails
10 X. Cai et al. / Science of the Total Environment 746 (2020) 140810

Table 5 4.4.3. Lag treatment of direct environmental regulations

Poisson regression results grouped by factor intensity. For this study, the degree of violation of one lag phase was selected
Variable RE FE as an explanatory variable to avoid the deviation of the reversed causal-
(1) (2) (3) (4)
ity to the regression result; however, this may then have neglected the
impact of the current violation degree on green technology innovations.
Labor-resource Technology-capital Labor-resource Technology-capital
Thus, in order to mitigate this potential problem, and referring to the re-
intensive intensive intensive intensive
search of Popp (2003) and Klemetsen et al. (2018), max(Leveli, t−1,
Level = 1 0.168 0.201⁎⁎ 0.027 0.122
Leveli, t) was used as an explanatory variable to investigate the impact
(0.12) (0.09) (0.10) (0.08)
Level = 2 0.284⁎ 0.502⁎⁎⁎ 0.264⁎ 0.343⁎⁎⁎
on green technological innovations in t − 1 years and t years subject
(0.15) (0.12) (0.15) (0.10) to the regulation and control of the degree of violation. The results of re-
Risk = 1 0.336⁎ 0.525⁎⁎⁎ 0.105 0.147 gression are shown in Table A3, which also support the research as-
(0.18) (0.15) (0.20) (0.13) sumptions presented above.
govsub −0.003 −0.018 0.008 −0.016
(0.03) (0.02) (0.04) (0.01)
lnscale 0.378⁎⁎⁎ 0.251⁎⁎⁎ 0.602⁎⁎ 0.204⁎⁎ 4.4.4. New measurement of green technology innovations
(0.05) (0.05) (0.24) (0.09) Referring to the measurement of green technological innovations by
Humcap −0.009 0.439 0.118 0.196
Popp (2006) and Shaozhou Qi et al. (2018), in this study, the proportion
(0.54) (0.57) (0.49) (0.73)
Profit −0.140 0.219 −0.126 0.148 of environmental patent applications to all invention patent applica-
(0.23) (0.15) (0.25) (0.16) tions in the same year was used as a new proxy variable to text the ro-
Intensity 0.090 0.001 −0.085 0.008 bust of results. The regression results are reported in Table A4. The
(0.06) (0.02) (0.05) (0.03) finding here is reflected in the table serious violations still have a posi-
Slack −0.021 −0.003 −0.035 0.029⁎⁎⁎
(0.03) (0.02) (0.04) (0.01)
tive and significant impact on green technology innovations, which is
lncapital 0.176⁎ 0.154⁎ 0.318 0.109 consistent with the previous results, while minor violations also have
(0.10) (0.08) (0.19) (0.10) a positive, but insignificant, impact on innovations. As a result, the for-
lnage −0.309 −0.322 −4.291⁎⁎⁎ 0.300 mer may be said to exert a greater incentive effect on green technology
(0.26) (0.23) (1.62) (0.92)
innovations than the latter, once again supporting hypothesis H1.
envdis −0.082 −0.133 −0.271 −0.118
(0.16) (0.11) (0.17) (0.13)
Year fix 0.000 0.000 0.000 0.000
effect 5. Conclusions and policy implications
N 937 1714 636 1179

The numbers in parentheses are standard errors; in order to eliminate the effect of
heteroscedasticity on the econometric model, cluster-robust standard errors are used in
all model estimates.
⁎ p b 0.1.
⁎⁎ p b 0.05.
⁎⁎⁎ p b 0.01.
precisely selecting which positive integer is to be used, based on the re-
gression analysis. When it comes to the selection of the Standardized
Poisson Regression or Zero-inflated Poisson Regression, Greene (1994)
proposed using Vuong tests on non-nested models (Vuong, 1989) to ex-
amine zero inflation. However, a recent study by Wilson (2015) sug-
gests that the Vuong test is not suitable for testing the Zero-inflated
model. When the probability of zero inflation is 0, nesting occurs at
the boundary, which violates the Vuong testing rules of the non-
nested model. Therefore, the statistical distribution in the test is not a
standardized normal distribution. Since the actual distribution is un-
known, it cannot be used for inference purposes. In light of the above,
the current study used the AIC and BIC information criteria provided
by the Stata Base Reference Manual 15 (2017) to check which would
be more appropriate for the current context – the standardized Poisson
model or the Zero-inflated Poisson model. The respective test and re-
gression results are reported in Tables 6 and A2.
The test results show that there are differences between the Poisson
fixed effect model and the Poisson zero expansion model AIC and BIC in-
formation standard test values. The test results show that the Poisson
fixed effect model is suitable and there is no sample selection bias in
the regression results. The regression results of Poisson's zero expansion
model in Table A2 are also consistent with the Poisson model, and the
results of this paper are again verified to be robust.
Table 6
Test results of AIC and BIC information criteria.
Model Obs ll (null) ll (model) df AIC
Poisson 1815 – −1025.734 17 2085.468
Zip 2652 −2448.82 −1466.667 464 3861.335
This paper investigated the enterprise panel data of Chinese listed
companies in heavily polluting industries, and the influence of direct
environmental regulations based on environmental regulations and li-
censing emission standards on green technology innovations, using
the Poisson regression model. The results suggest the following:
The results show that: Firstly, direct environmental regulation can
effectively stimulate green technology innovation in heavily polluting
industries, and the stricter direct environmental regulation is, the
greater incentive effect on green technology innovation in heavily pol-
luting industries; Secondly, the marginal effect of direct environmental
regulation on green technology innovation was 7.2% in heavily polluting
industries. Thirdly, the incentive effect of direct environmental regula-
tions on innovations is also influenced by enterprise ownership,
whereby such incentives act more strongly on state-owned listed com-
panies than on non-state-owned listed companies; Fourthly, influenced
by the heterogeneity of industry factor density, the incentive effect of
serious violations on the development of green technology innovations
in technology-capital intensive industries was found to be stronger than
that on the same in labor-resource intensive industries.
These results have major implications for companies and
policymakers regarding the design of technology innovations policies
and incentives: Firstly, compared with developed countries, the imple-
mentation capacity of environmental regulation in developing countries
is weak (Wang et al., 2017). Developing countries need to strengthen di-
rect environmental regulation to carry out green technology innovation
and achieve green transformation and sustainable development of the in-
dustry; Secondly, the analysis also suggests that policymakers should
think about industries and enterprises' heterogeneity during designing
environmental policies. For enterprises with different ownerships and in-
dustry factor density, the government could develop flexible, targeted,
and dynamic policies; Thirdly, green technology innovation has the posi-
tive externality of knowledge spillover. As a result of technology diffusion,
the cost of pollution control in the whole society is constantly reduced
(Zeng and Wang, 2013). The standards of direct environmental regulation
BIC
should be updated with the spread of green technology, otherwise, it will
2179.033 lead to the locking effect of green technology and reduce the incentive ef-
6590.904
fect of direct environmental regulation on green technology innovation.
 X. Cai et al. / Science of the Total Environment 746 (2020) 140810 11

CRediT authorship contribution statement influence the work reported in this paper.

Xiang Cai: Conceptualization, Visualization, Writing - review &

editing. Bangzhu Zhu: Visualization, Supervision, Validation, Writing -
review & editing. Haijing Zhang: Methodology, Data curation, Software,
Writing - original draft, Writing - review & editing. Liang Li: Writing -
review & editing. Meiying Xie: Methodology, Data curation.
Declaration of competing interest
The authors declare that they have no known competing financial
interests or personal relationships that could have appeared to
Acknowledgments
We are grateful for the financial support provided by the National
Natural Science Foundation of China (No. 71463010), Social Science
Foundation of Jiangsu, China (No. 19GLC015), Philosophy and Social Sci-
ence Foundation for Colleges and Universities in Jiangsu Province
(2019SJA0160), Grant of Nanjing University of Information Science
and Technology (No. 2018r034) and research participants for their sug-
gestions for the design of this study. We also appreciate the data pro-
vided by The Institute of Public and Environmental Affairs (IPE).

Appendix A

Table A1
Negative binomial regression results.

Variable (1) (2) (3) (4) (5)

Whole sample State-owned Non-state-owned Labor-resource intensive Technology-capital intensive

Level = 1 0.115 0.204⁎ −0.159 0.026 0.129

(0.09) (0.12) (0.17) (0.16) (0.12)
Level = 2 0.315⁎⁎⁎ 0.333⁎⁎ 0.363 0.267 0.350⁎⁎
(0.12) (0.15) (0.23) (0.23) (0.14)
Risk = 1 0.139 0.239 −0.026 0.098 0.163
(0.17) (0.23) (0.26) (0.31) (0.20)
govsub 0.012 0.090 −0.274⁎ −0.022 0.023
(0.06) (0.06) (0.15) (0.16) (0.07)
lnscale 0.270⁎⁎ 0.352⁎⁎ 0.004 0.594⁎⁎ 0.212
(0.11) (0.17) (0.17) (0.26) (0.13)
Humcap −0.083 −0.427 0.997 0.131 0.075
(0.70) (0.83) (1.45) (1.00) (1.04)
Profit 0.063 0.067 −0.014 −0.132 0.147
(0.21) (0.24) (0.42) (0.37) (0.26)
Intensity −0.007 0.025 −0.036 −0.087 0.003
(0.04) (0.06) (0.05) (0.08) (0.04)
Slack 0.023 0.021 0.027⁎ −0.034 0.028⁎
(0.01) (0.06) (0.02) (0.05) (0.02)
lncapital 0.184⁎ −0.000 0.339⁎⁎ 0.314 0.146
(0.11) (0.14) (0.15) (0.21) (0.12)
lnage −1.081 −0.158 −2.012 −4.250⁎⁎ 0.257
(0.99) (1.46) (1.50) (1.66) (1.32)
envdis −0.218 −0.083 −0.588⁎ −0.270 −0.126
(0.16) (0.19) (0.32) (0.23) (0.23)
Year fix effect Control Control Control Control Control
N 1815 889 923 636 1179

Standard errors in parentheses.

⁎ p b 0.10.
⁎⁎ p b 0.05.
⁎⁎⁎ p b 0.01.

Table A2
Results of the zero-inflated Poisson regression model.

Variable (1) (2) (3) (4) (5)

Whole sample State-owned Non-state-owned Labor-resource intensive Technology-capital intensive

Level = 1 0.115 0.204⁎ −0.159 0.026 0.129

(0.09) (0.12) (0.17) (0.16) (0.12)
Level = 2 0.315⁎⁎⁎ 0.333⁎⁎ 0.365 0.267 0.350⁎⁎
(0.12) (0.15) (0.23) (0.23) (0.14)
Risk = 1 0.139 0.239 −0.025 0.097 0.163
(0.17) (0.23) (0.26) (0.31) (0.20)
govsub 0.012 0.090 −0.274⁎ −0.022 0.023
(0.06) (0.06) (0.15) (0.16) (0.07)
lnscale 0.270⁎⁎ 0.352⁎⁎ 0.004 0.594⁎⁎ 0.212
(0.11) (0.17) (0.17) (0.26) (0.13)
Humcap −0.083 −0.427 1.017 0.131 0.075
(0.70) (0.83) (1.45) (1.00) (1.04)
Profit 0.063 0.067 −0.014 −0.132 0.147

(continued on next page)

12 X. Cai et al. / Science of the Total Environment 746 (2020) 140810

Table A2 (continued)

Variable (1) (2) (3) (4) (5)

Whole sample State-owned Non-state-owned Labor-resource intensive Technology-capital intensive

(0.21) (0.24) (0.42) (0.37) (0.26)

Intensity −0.007 0.025 −0.037 −0.087 0.003
(0.04) (0.06) (0.05) (0.08) (0.04)
Slack 0.023 0.021 0.027⁎ −0.034 0.028⁎
(0.01) (0.06) (0.02) (0.05) (0.02)
lncapital 0.184⁎ −0.000 0.324⁎⁎ 0.314 0.146
(0.11) (0.14) (0.15) (0.21) (0.12)
lnage −1.081 −0.158 −2.031 −4.251⁎⁎ 0.257
(0.99) (1.46) (1.50) (1.65) (1.32)
envdis −0.218 −0.083 −0.585⁎ −0.270 −0.126
(0.16) (0.19) (0.32) (0.23) (0.23)
Year fix effect Control Control Control Control Control
N 2651 1137 1514 937 1714

Standard errors in parentheses.

⁎ p b 0.10.
⁎⁎ p b 0.05.
⁎⁎⁎ p b 0.01.

Table A3
Regression results of lag structure transformation of violation degree.

Variable (1) (2) (3) (4) (5)

Whole sample State-owned Non-state-owned Labor-resource intensive Technology-capital intensive

Level = 1 0.231⁎⁎⁎ 0.301⁎⁎⁎ 0.030 0.164 0.219⁎⁎

(0.07) (0.09) (0.12) (0.13) (0.09)
Level = 2 0.389⁎⁎⁎ 0.384⁎⁎⁎ 0.438⁎⁎⁎ 0.528⁎⁎⁎ 0.336⁎⁎⁎
(0.09) (0.10) (0.17) (0.20) (0.10)
Risk = 1 0.133 0.236⁎ −0.032 0.081 0.164
(0.11) (0.14) (0.18) (0.20) (0.13)
govsub 0.015 0.090⁎⁎ −0.274⁎⁎ −0.030 0.024
(0.06) (0.04) (0.11) (0.13) (0.06)
lnscale 0.245⁎⁎⁎ 0.318⁎⁎⁎ −0.013 0.548⁎⁎ 0.176⁎
(0.09) (0.12) (0.13) (0.25) (0.09)
Humcap −0.075 −0.445 1.020 0.007 0.073
(0.43) (0.36) (1.26) (0.50) (0.74)
Profit 0.090 0.097 0.008 −0.140 0.164
(0.13) (0.13) (0.35) (0.26) (0.16)
Intensity −0.010 0.025 −0.040 −0.086⁎ −0.003
(0.03) (0.03) (0.04) (0.05) (0.03)
Slack 0.024⁎ 0.026 0.026⁎⁎ −0.032 0.028⁎⁎⁎
(0.01) (0.03) (0.01) (0.04) (0.01)
lncapital 0.190⁎⁎ 0.019 0.333⁎⁎ 0.282 0.158⁎
(0.09) (0.09) (0.14) (0.19) (0.09)
lnage −1.209 −0.409 −2.021⁎ −4.427⁎⁎⁎ 0.128
(0.80) (1.16) (1.06) (1.60) (0.92)
envdis −0.207⁎⁎ −0.074 −0.542⁎⁎⁎ −0.258⁎ −0.119
(0.09) (0.11) (0.16) (0.16) (0.14)
Year fix effect Control Control Control Control Control
N 1814 889 922 635 1179

Standard errors in parentheses.

⁎ p b 0.10.
⁎⁎ p b 0.05.
⁎⁎⁎ p b 0.01.

Table A4
Regression results of the share of environmental invention patents.

Variable (1) (2) (3) (4) (5)

Whole sample State-owned Non-state-owned Labor-resource intensive Technology-capital intensive

Level = 1 0.091 0.103 0.015 0.044 0.121

(0.09) (0.11) (0.14) (0.13) (0.11)
Level = 2 0.365⁎⁎⁎ 0.328⁎⁎ 0.431⁎⁎ 0.297 0.409⁎⁎⁎
(0.12) (0.16) (0.19) (0.26) (0.14)
Risk = 1 0.369⁎⁎ 0.509⁎⁎ 0.142 0.132 0.495⁎⁎
(0.17) (0.24) (0.25) (0.25) (0.20)
govsub 0.005 0.056 −0.220⁎ 0.108 −0.025
(0.04) (0.04) (0.13) (0.12) (0.05)
lnscale 0.256⁎⁎ 0.278⁎ 0.130 0.614⁎⁎ 0.173
(0.12) (0.17) (0.15) (0.25) (0.13)
 X. Cai et al. / Science of the Total Environment 746 (2020) 140810 13

Table A4 (continued)

Variable (1) (2) (3) (4) (5)

Whole sample State-owned Non-state-owned Labor-resource intensive Technology-capital intensive

Humcap −0.488 −0.547 −0.611 0.124 −0.783

(0.75) (0.66) (1.62) (1.16) (1.06)
Profit 0.047 0.021 0.178 −0.048 0.170
(0.21) (0.24) (0.37) (0.47) (0.23)
Intensity −0.014 −0.032 0.002 −0.091 −0.003
(0.03) (0.04) (0.04) (0.06) (0.03)
Slack 0.022⁎⁎ 0.001 0.030⁎⁎⁎ −0.037 0.030⁎⁎⁎
(0.01) (0.05) (0.01) (0.07) (0.01)
lncapital 0.203⁎⁎ 0.033 0.352⁎ 0.453⁎⁎ 0.122
(0.10) (0.08) (0.18) (0.18) (0.10)
lnage −0.950 −0.787 −1.462 −5.016⁎⁎ 0.813
(1.10) (1.63) (1.52) (1.97) (1.26)
envdis −0.311⁎⁎ −0.152 −0.569⁎⁎⁎ −0.568⁎⁎ −0.054
(0.14) (0.17) (0.21) (0.23) (0.16)
Year fix effect Control Control Control Control Control
N 1815 889 923 636 1179

Standard errors in parentheses.

⁎ p b 0.10.
⁎⁎ p b 0.05.
⁎⁎⁎ p b 0.01.

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