Publication Type
Journal Article
Version
acceptedVersion
Publication Date
1-2026
Abstract
Policy uncertainty can undermine the power of government subsidies to stimulate environmentally friendly research and development. We show that Chinese firms’ green R&D falls as the uncertainty of environmental subsidies rises: Exogenous, weather-driven air pollution variability induces subsidies to fluctuate, and firms in areas with high weather-driven subsidy variability undertake less green R&D and hire fewer technical employees, controlling for the average level of subsidies. Heavy emitters and environmental technology firms are more affected. The results also illustrate how policy uncertainty can arise when policymakers are influenced by conditions that are salient but with causes that are difficult to disentangle.
Keywords
Climate Finance, Corporate Investment, Environmental Economics, Irreversible Investment, Policy Uncertainty, R&D
Discipline
Environmental Sciences | Finance and Financial Management | Technology and Innovation
Research Areas
Finance
Publication
Journal of Financial Economics
Volume
175
First Page
1
Last Page
14
ISSN
0304-405X
Identifier
10.1016/j.jfineco.2025.104189
Publisher
Elsevier
Citation
WANG, Mengyu; WURGLER, Jeffrey; and ZHANG, Hong.
Policy uncertainty reduces green innovation. (2026). Journal of Financial Economics. 175, 1-14.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7772
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jfineco.2025.104189
Included in
Environmental Sciences Commons, Finance and Financial Management Commons, Technology and Innovation Commons