(A) study on the effect of environmental regulations on firm innovation activities

Abstract

The Porter hypothesis states that well-designed regulations can lead to firm innovation activities and enhance firm competitiveness. This paper focuses on how the adoption of foreign environmental regulations affects the innovation activities of domestic automotive components suppliers when the policy is based on the form of performance-based technology-forcing regulations. The research shows that generally firms increase the output of innovation activities as the regulation becomes more stringent. However, there are variations if the firms are under direct pressure from the regulatory changes, the companies are not exposed to foreign markets, or according to their R&D intensity. Thus, this research implies that it is necessary to understand the firm characteristics and the structure of the industry when the government expects firms to be stimulated by the imposition of environmental regulations. Besides, as to the adoption of foreign environmental regulation, the study shows that the level of export acts as a critical factor that contributes to the active production of innovation outcomes.