Intensive judicial oversight and corporate green innovations: Evidence from a quasi-natural experiment in China

The deterioration of pollution problem has increased environmental disputes. However, little is known about the relationship between intensive judicial oversight and corporate green innovations. Regarding the establishment of environmental courts in China as an almost ideal quasi-natural experiment, this paper identifies the impact and mechanism of environmental courts on corporate green innovations. We find that: (1) environmental courts have a significant positive impact on green innovations. However, by employing instrument variable (IV) strategy to alleviate the endogenous issues, we find environmental courts mainly promote the quantity of green innovations; (2) the positive effect on green innovations is more salient for firms in the industry with high pollution intensity, state-owned enterprises, and firms in regions with stricter mass supervision; (3) environmental courts can improve the efficiency of dealing with environmental disputes and alleviate the collaboration between government and firms. Therefore, it could promote corporate green innovations with the increasing pressure for pollution abatement; (4) environmental courts could cause additional costs to firms, such as crowding out non-green innovations and decreasing corporate TFP in the short term. Meanwhile, the establishment of environmental courts could also achieve specific social welfare effects, which is conducive to improving local environmental quality. This paper provides implications for judicial oversight of regulators on environmental protection. • Regarding environmental courts in China as a quasi-natural experiment, this paper identifies the impact and mechanism of environmental courts on corporate green innovations. • Environmental courts have a significant positive impact on green innovations. However, by employing IV strategy, we find environmental courts mainly promote the quantity of green innovations. • This positive effect on green innovations is more salient for firms in high-polluting industries, state-owned enterprises, and firms in regions with stricter mass supervision. • Environmental courts improve the efficiency of environmental disputes and alleviate the collaboration between government and firms, thereby promoting corporate green innovations. • Environmental courts bring additional costs to firms, such as crowding out non-green innovations and decreasing corporate TFP in the short term. Meanwhile, it could also achieve social welfare effects.