Environmental policy and corporate green innovation: The role of penalties, taxes, and subsidies in China.

Environmental penalties (EP), environmental protection taxes (ET), and environmental subsidies (ES) are key components of China's environmental regulatory framework, yet their combined and individual effects on corporate green innovation (CGI) remain poorly understood. This study investigates the direct and interactive effects of these policy instruments using panel data from A-share listed firms between 2008 and 2021. We find that: (1) ET and ES significantly stimulate both substantive and strategic green innovation, while EP has a counterproductive effect on substantive innovation; (2) EP exacerbates corporate financing constraints, ET promotes environmental investments, and ES strengthens internal green governance practices, each influencing innovation outcomes differently; (3) There is a substitution effect between EP and ET, while no significant interaction is observed between other policy pairs; (4) Heterogeneity tests show that technology-intensive firms are more responsive to ET and ES, while non-technology-intensive firms are more sensitive to EP. Our results provide actionable insights for policymakers on balancing environmental regulations to promote both ecological sustainability and corporate green competitiveness.