Environmental regulation, greenization pressure and enterprise digital transformation: the role of government subsidy policies in China

Green and low-carbon development, together with digital transformation, constitute the most critical development tasks for China’s current economic transition. This study uses data from Chinese companies to examine the impact of environmental regulations on the digital transformation of enterprises and explores the underlying transmission mechanism. The results show that environmental regulation promotes the digitalisation level of manufacturing enterprises, and the conclusions are supported by instrumental-variable estimation and a series of robustness checks. Environmental regulation facilitates digital transformation primarily through the investment effect and the innovation effect, whereas the cost effect hinders firms’ digital upgrading. The promoting effect is more pronounced in industries characterised by intense competition and in heavily polluting sectors. Environmental regulation also increases fiscal subsidies and tax incentives provided by the government to relevant enterprises; through guiding policies and subsidy programmes, the government supports and accelerates firms’ digital transformation.