Does command-and-control regulation promote green innovation performance? Evidence from China's industrial enterprises.

Many developing countries including China have launched command-and-control regulation (CCR) to achieve sustainable development. However, we know little about whether CCR promotes green innovation performance. This study empirically analyses the impact of CCR, which is represented by China's eleventh Five-Year Plan (FYP) environmental regulation, on enterprise green innovation performance and use green innovation efficiency as the measure of innovation. Super-SBM DEA model, difference-in-differences (DID) and difference-in-difference-in-differences (DDD) methods are employed to investigate 496 industrial enterprises in China's A-share market for the 2002-2017 period. Moreover, we distinguish each treat group from the control group by using continuous variables and consider enterprise features in the analysis. The results find that, in general, the eleventh FYP environmental regulation negatively influences enterprise green innovation efficiency in a short-term through reducing cash flows. More specifically, the eleventh FYP CCR generates a detrimental effect on small enterprises, state-owned enterprises, and enterprises in China's western and eastern regions. Overall, this empirical analysis suggests that the government should consider the effect of CCR on economy and focus on the heterogeneity of enterprises during designing environmental policies.