Subjective perception of economic policy uncertainty and corporate green innovation: evidence from China

Abstract

Uncertainty stemming from economic policy shifts has long shaped firms' production and investment decisions, yet its impact on green innovation (GI) through the lens of firms' perception remains underexplored. This study aims to investigate how firm-level subjective perception of economic policy uncertainty (SEPU) affects corporate green innovation. Analyzing annual reports of Chinese A-share listed firms from 2011 to 2022, we construct a text-based measure of SEPU. Using firm- and year-fixed-effects models along with comprehensive robustness checks, we estimate the effect of SEPU on GI and further examine underlying mechanisms and boundary conditions through mediation and heterogeneity analyses. We document that SEPU significantly inhibits corporate GI. This effect operates primarily through reduced R&D investment and delayed digital transformation. The negative impact is more pronounced for non-state-owned enterprises, firms with financially experienced executives and firms in regions with weaker environmental regulations. Conversely, institutional shareholding and over-indebtedness may mitigate the adverse effects on corporate GI. Moving beyond macro-level indicators, this study advances the literature by uncovering the micro-level cognitive channel through which policy uncertainty impedes green innovation. Our findings provide new evidence linking managerial risk perceptions to sustainable investment decisions, offering practical insights for policymakers to enhance communication and for firms to build resilience in their green innovation strategies.