Environmental Laws and Sustainable Development of Green Technology Innovation: Evidence from Chinese Listed Firms

The revision and implementation of the Environmental Protection Law signaled a major transformation in China’s environmental regulatory paradigm—from a traditional command-and-control model to a more diversified and market-oriented approach. This shift has raised critical questions regarding the actual impact of regulation on green technological innovation. Using panel data from A-share listed firms in China between 2011 and 2022, this study employs a propensity score matching–difference-in-differences (PSM-DID) model to identify the causal effect of environmental regulation on green innovation. Results reveal that the enactment of the law significantly enhances firms’ green innovation capacity. Robustness tests confirm the stability of these findings. Further analysis identifies several potential transmission mechanisms. Specifically, we find robust empirical evidence that environmental regulation exerts its effects through elevated R&D investment levels and strengthened executives’ environmental awareness, while the financing constraint and environmental information disclosure channels yield suggestive yet less statistically robust results in indirect effect tests. Moreover, heterogeneous effects are more evident among non-state-owned enterprises, firms in the eastern region, and those in highly market-oriented provinces. This study contributes empirical evidence to the literature on environmental regulation and green innovation, and offers policy insights for improving environmental governance in emerging economies.