Escape or adapt? green innovation and pollution transfer within business groups

Escape or adapt? green innovation and pollution transfer within business groups | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Article Escape or adapt? green innovation and pollution transfer within business groups yu xie, Ling-Yun He This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-9015602/v1 This work is licensed under a CC BY 4.0 License Status: Under Review Version 1 posted 9 You are reading this latest preprint version Abstract Environmental regulation is a central tool for reducing pollution, and green innovation is a key pathway through which societies seek to decouple growth from environmental harm. Understanding how regulation shapes innovation is therefore a foundational question across the natural and social sciences. Prior work shows that stricter regulation can spur cleaner technologies, but it also highlights firms’ capacity to adjust operations across locations. Business groups, which coordinate multiple subsidiaries, can move capital, personnel, and innovative activity internally when regulations differ across regions. Yet how such intra-group reallocation affects green innovation remains poorly understood. This study examines whether heterogeneous environmental regulation within business groups weakens the innovation response that regulation is intended to induce. Using manually matched subsidiary-level data on Chinese listed business groups from 2003 to 2015 and the staggered pollution fee reform as a quasi-natural experiment, evidence indicates that subsidiaries in less regulated regions reduce green innovation when sister firms face tighter regulation. This result contrasts with the prevailing assumption that stronger regulation uniformly increases green innovation, and instead reveals a within-group “evasion” channel that reallocates innovation away from stricter jurisdictions. At the same time, overall pollution reduction remains significant, especially in heavily polluting industries, indicating that emission control and innovation responses can diverge. Mechanism tests point to transfers of core R&D personnel, tighter internal capital allocation, and higher compliance costs as the proximate drivers, with stronger effects in groups with shorter control chains and in invention patents. More broadly, the findings suggest that spatially uneven regulation can reshape the geography of innovation within firms, not just the geography of production. The results speak to regulatory design in any setting where multi-unit firms operate across jurisdictions and can reallocate innovation internally. Earth and environmental sciences/Environmental sciences Earth and environmental sciences/Environmental social sciences Business group Green innovation Firm reallocation Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Under Review Version 1 posted Reviews received at journal 10 May, 2026 Reviewers agreed at journal 07 May, 2026 Reviewers agreed at journal 24 Mar, 2026 Reviewers agreed at journal 23 Mar, 2026 Reviewers invited by journal 19 Mar, 2026 Editor assigned by journal 19 Mar, 2026 Editor invited by journal 19 Mar, 2026 Submission checks completed at journal 17 Mar, 2026 First submitted to journal 17 Mar, 2026 You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-9015602","acceptedTermsAndConditions":true,"allowDirectSubmit":false,"archivedVersions":[],"articleType":"Article","associatedPublications":[],"authors":[{"id":609053457,"identity":"db000a5d-440f-431f-9b44-f4ef323f763a","order_by":0,"name":"yu xie","email":"","orcid":"","institution":"Jinan University","correspondingAuthor":false,"prefix":"","firstName":"yu","middleName":"","lastName":"xie","suffix":""},{"id":609053458,"identity":"c3a55b42-1f45-4e64-96f8-be0cc3b913f9","order_by":1,"name":"Ling-Yun He","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAAr0lEQVRIiWNgGAWjYBACPgYeBoYPJGlhA2phnEGyFmYe0rRI5B58bFOzzV6+gfnhB4aaO8RoyUs2zjl2O3HDATZjCYZjz4jRkmMmncN2O8GAgcGMgbHhMFFazH9b/LsNdBj7N6K1mDEztt1mbDjAQ6wtPG+MJXv7gH45zFMskXCMCC387DmGH358AzqsvX3jhw81RGhhEEiAMpiBOAG3OmRrDhClbBSMglEwCkYyAABGcDNjwElyHwAAAABJRU5ErkJggg==","orcid":"","institution":"Jinan University","correspondingAuthor":true,"prefix":"","firstName":"Ling-Yun","middleName":"","lastName":"He","suffix":""}],"badges":[],"createdAt":"2026-03-03 04:08:55","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-9015602/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-9015602/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":105563739,"identity":"23245186-ccf7-4209-b459-b67da15b133a","added_by":"auto","created_at":"2026-03-27 12:47:39","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":662438,"visible":true,"origin":"","legend":"","description":"","filename":"manuscriptescapeoradapt.pdf","url":"https://assets-eu.researchsquare.com/files/rs-9015602/v1_covered_818e2e52-c3cc-4b2c-94bc-77f9d9233de3.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Escape or adapt? green innovation and pollution transfer within business groups","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":false,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"humanities-and-social-sciences-communications","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"palcomms","sideBox":"Learn more about [Humanities \u0026 Social Sciences Communications](http://www.nature.com/palcomms/)","snPcode":"41599","submissionUrl":"https://submission.springernature.com/new-submission/41599/3","title":"Humanities and Social Sciences Communications","twitterHandle":"","acdcEnabled":true,"dfaEnabled":true,"editorialSystem":"stoa","reportingPortfolio":"Nature AJ","inReviewEnabled":true,"inReviewRevisionsEnabled":false},"keywords":"Business group, Green innovation, Firm reallocation","lastPublishedDoi":"10.21203/rs.3.rs-9015602/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-9015602/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eEnvironmental regulation is a central tool for reducing pollution, and green innovation is a key pathway through which societies seek to decouple growth from environmental harm. Understanding how regulation shapes innovation is therefore a foundational question across the natural and social sciences. Prior work shows that stricter regulation can spur cleaner technologies, but it also highlights firms\u0026rsquo; capacity to adjust operations across locations. Business groups, which coordinate multiple subsidiaries, can move capital, personnel, and innovative activity internally when regulations differ across regions. Yet how such intra-group reallocation affects green innovation remains poorly understood. This study examines whether heterogeneous environmental regulation within business groups weakens the innovation response that regulation is intended to induce. Using manually matched subsidiary-level data on Chinese listed business groups from 2003 to 2015 and the staggered pollution fee reform as a quasi-natural experiment, evidence indicates that subsidiaries in less regulated regions reduce green innovation when sister firms face tighter regulation. This result contrasts with the prevailing assumption that stronger regulation uniformly increases green innovation, and instead reveals a within-group \u0026ldquo;evasion\u0026rdquo; channel that reallocates innovation away from stricter jurisdictions. At the same time, overall pollution reduction remains significant, especially in heavily polluting industries, indicating that emission control and innovation responses can diverge. Mechanism tests point to transfers of core R\u0026amp;D personnel, tighter internal capital allocation, and higher compliance costs as the proximate drivers, with stronger effects in groups with shorter control chains and in invention patents. More broadly, the findings suggest that spatially uneven regulation can reshape the geography of innovation within firms, not just the geography of production. 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