Environmental Vertical Management Reform and the strategic response of corporate green innovation

We examine whether strengthened regulatory independence promotes substantive green innovation or instead results in a decoupling between observable green innovation responses and underlying technological capability. The reform's impact is primarily concentrated in resource-based cities, where regulatory pressure is most salient. Specifically, while the reform increases green patent applications, it has no robust effect on patent grants or R&D investment. The joint pattern of increased environmental fines and no robust expansion in observed general government subsidies is consistent with the enforcement-dominant channel. Taken together, these findings reveal a decoupling between observable green innovation responses and underlying technological capability, suggesting that firms respond to regulatory shocks by prioritizing observable green innovation responses over substantive technological progress.