Impact of Government Subsidies on Green Innovation in Polluting Enterprises: A Review

Abstract

To address the increasingly severe environmental challenges and achieve the "dual carbon" goals, the Chinese government has implemented a series of subsidy policies to promote green innovation and transformation of heavily polluting enterprises. However, against the backdrop of fierce market competition and tightening resource constraints, many companies still lack sufficient inherent motivation for green innovation. This study employs a systematic literature review method, analyzing relevant research from databases such as Web of Science, Scopus, and CNKI, aiming to systematically elucidate the research trajectory of government subsidies' impact on the green innovation performance of heavily polluting enterprises, thereby providing a theoretical perspective for improving relevant policy designs. The paper first posits that the logical starting point for government subsidies in green innovation lies in correcting environmental externalities, laying the foundation for subsequent discussions. It then examines the "incentive effect" and "crowding-out effect" of government subsidies on enterprises' green innovation performance, analyzes the non-linear relationship between government subsidies and corporate green innovation performance, and discusses the limitations of existing research from three aspects: relationship complexity, classification mechanisms, and influencing factors. Building on this, the paper integrates institutional theory with principal-agent theory to construct a multi-level analytical framework. This framework emphasizes the regulatory role of external institutional pressures, such as environmental regulations, on the effectiveness of subsidy implementation, while also focusing on how internal agency problems within enterprises may lead to inefficient utilization of subsidies, and how environmental information disclosure can help mitigate this issue. The study finds that there exists a non-linear relationship between subsidy intensity and green innovation performance, exhibiting "incentive effects" and "crowding-out effects" at different subsidy levels. Concurrently, factors such as environmental regulations, enterprise characteristics, and information disclosure practices play a moderating role in the effectiveness of subsidies. These findings have significant implications for policy-making, including designing subsidy schemes that avoid potential crowding-out effects at high subsidy levels, strengthening environmental regulations to enhance the effectiveness of R&D subsidies, implementing robust environmental information disclosure mechanisms, and formulating differentiated subsidy policies based on enterprise characteristics.