Does political inspection promote corporate green innovation?

Green innovation is an effective approach to breaking resource availability and environment protection constraints that firms face. China has set up a political inspection team to fight against corruption and deepen state-owned firm reform in recent years. From 2013 to 2015, inspections, as exogenous events, made great achievements in regulating firm behavior. This regulation may exert an effect on green and innovative development in China. Therefore, we adopt the event of political inspection of state-owned firms as a quasi-natural experiment and examine the impact of such an inspection on firm green innovation using data from listed Chinese state-owned enterprises. Findings show that political inspection enhances corporate green innovation. The effect is more pronounced for firms with higher executive compensation and institutional ownership. Political inspection promotes firm green innovation by alleviating financing constraints and reducing rent-seeking. Our study suggests that political inspection, as an external shock, is key to promoting firm green innovation.