The Effects of Environmental Regulation and Financial Constraints on Corporate R&D Investment in China

Abstract

Based on a panel dataset of non-financial listed firms during 2007–2014 in China, we examine both independent and combined effects of environmental regulations and financial constraints on corporate R&D investment. In addition, we uncover the underlying mechanism of how both indicators affect R&D investment through three financing sources. The results show that: (1) Environmental regulations can significantly promote R&D investment, while financial constraints have the opposite effects. (2) Among the three financing sources, environmental regulations promote R&D investment only by internal financing, while financial constraints inhibit R&D investment by all three financing sources.