How Officials’ Political Incentives Influence Corporate Green Innovation

Drawing on tournament theory, we argue that when environmental goals are incorporated into the cadre evaluation system, compared to officials who are close to retirement (i.e., retiring officials), non-retiring officials may exert more effort to foster risky green innovation. Based on a sample of publicly traded firms from heavily polluting industries in China between 2008 and 2016, we hypothesize and find that confronted with severe environmental pollution, firms in provinces with non-retiring governors have higher green innovation performance than those in provinces with retiring governors. Moreover, we find that this effect is stronger for firms in provinces whose governors have higher promotion anticipation, for local state-owned enterprises (SOEs), and for politically connected firms. Our study identifies the political incentives of government officials as an important antecedent of corporate green innovation and highlights the value of establishing a “green” cadre evaluation system to promote sustainable development.