Does performance-based environmental regulation improve the quality of innovation responses in the auto industry? The moderating role of corporate governance effectiveness

Innovation is the primary driving force for high-quality development. How can we effectively leverage the role of environmental regulation to force enterprises to innovate and promote high-quality development? This paper breaks through the single dimension of environmental regulation and innovation, and examines the impacts of performance-based environmental regulation stringency (PBR) on high-quality and low-quality innovation responses (HQI and LQI). Analyzing a European country on-road vehicle emissions dataset with Heckman two-stage models, the study demonstrates that performance-based environmental regulation has different impacts on two types of innovation responses. The research results are as follows: (1) Stringent PBR has a significant negative effect on HQI decisions and corresponding magnitude, while PBR promotes the occurrence and magnitude of LQI. (2) The impact of stringent PBR on innovation responses is different among automakers with different corporate governance. Specifically, the inhibitory effect of PBR on HQI and the positive effect on LQI can be alleviated when corporate governance is effective. (3) For transmission mechanisms, stringent PBR promotes HQI through differentiation strategic positioning and leads to LQI through cost leadership strategic positioning. (4) Further discussion found that the shorter implementation timescale of PBR and fewer resources within the automaker can strengthen the adverse impact of PBR on HQI and the promoting effect on LQI. These results provide references for the decision making of scientific environmental policy and the reasonable planning of policy stringency to improve environmental quality and social welfare.