Does government ownership help make private firms greener? Evidence from an emerging market

Abstract The proponents of the conventional detrimental view contend that government ownership results in efficiency losses, which suggests that it has a negative effect on corporate green innovation at private firms with government shareholders. The beneficial view that we propose in this study is that government ownership helps private firms to acquire the external resources that are needed for green innovation and to share the risks that attend on it, which suggests that government ownership has a positive effect on corporate green innovation at private firms with government shareholders. In this study, we use a large sample of privately controlled enterprises (PCEs) with government shareholders in the Chinese A‐share market to examine the beneficial view . The baseline results show that government ownership of PCEs is positively associated with corporate green innovation. These results are robust to a set of sensitivity tests and endogeneity concerns. Furthermore, the channel analyses show that government ownership of PCEs promotes corporate green innovation through the acquisition of external resources and the sharing of risks. Additionally, the cross‐sectional analyses show that the positive effect of government ownership of PCEs on corporate green innovation is stronger at firms that face more financial constraints, at firms that are subject to greater economic policy uncertainty, and at firms that are located in areas with poorer protection of intellectual property rights. Overall, the results confirm our beneficial view that government ownership has a positive effect on corporate green innovation at private firms with government shareholders.