Low-Carbon City Pilot Policy and Corporate Green Innovation Bubbles

This study addresses the problem of whether China’s Low-Carbon City Pilot Policy (LCCP) unintentionally induces corporate green innovation bubbles. The aim is to investigate the policy’s effect on firms’ green innovation behavior and uncover the mechanisms behind potential bubble formation. Using panel data of Chinese A-share listed companies from 2000 to 2022 and applying a staggered DID model, the study examines how the LCCP influences the divergence between the quantity and quality of green innovation. The empirical results show that the LCCP significantly increases green innovation bubbles, as firms tend to prioritize the number of green patent applications over substantive technological breakthroughs. Mechanism analyses indicate that intensified market competition and strengthened herd behavior are key channels through which the policy amplifies bubble effects. Additional heterogeneity tests reveal that the bubble effect is more pronounced in firms with higher ownership concentration, lower environmental subsidies, and those operating in non-high-pollution industries. This study concludes that while low-carbon policies promote green transition, they may also lead to unintended distortions in corporate innovation strategies. Future research may explore policy designs that better balance innovation quality and quantity, as well as assess long-term economic and environmental consequences of green innovation bubbles. JEL Classification Number: Q58, O32, O31.