Does institutional change during the green transition influence low-carbon innovation? Evidence from China's Low-Carbon City Project

Abstract

Unlike the existing institutional literature, which emphasizes regulatory pressure and coercive processes, we focus on how institutional change creates an environment that drives firms toward low-carbon innovation through multiple institutional forces. The Low-Carbon City Project serves as a vehicle for this change, which operates through regulation, norms, and cognition. In addition, our research examines how the institutional environment interacts with institutional change. In the Chinese context, we argue that local protectionism and corporate rent-seeking behavior—common forms of administrative intervention—can weaken the momentum of institutional change and hinder the fostering of low-carbon innovation. We validate these hypotheses using longitudinal data (2007–2019) from 1069 Chinese listed firms in highly polluting industries, with robust results across different methods and samples.