The Impact of Officials’ Off-Office Accountability Audit of Natural Resource Assets on Firms’ Green Innovation Strategies: A Quasi-Natural Experiment in China

Abstract

It is important to assess the factors that affect firms’ strategies for environmental improvement. Taking China’s pilot of officials’ off-office accountability audit of natural resource assets (hereafter accountability audit) that commenced in 2014 as an exogenous shock to government audits of leading officials, we use a difference-in-differences method (DID) to examine the impact of government audits on firms’ green innovation strategies. Our results show that the accountability audit increases the proximity between firms’ previous and present green innovation fields and enhances incremental rather than radical green innovation. Furthermore, these influences are stronger in the case of pressure from local governments for firms to adopt environmental protection measures, government control of firms, and market performance pressures than in other cases. In addition, the accountability audit drives investment in environmental protection toward green innovation in existing fields. Finally, the accountability audit increases firms’ economic value added and disclosure of social responsibility information. Overall, our study provides evidence that firms conduct similar and known green innovations in response to government audits.