Study on the Relationship between Innovation Capability and Profit Growth: Based on the Impact of Environmental Policy

Abstract

In order to provide suggestions forthe reform and transformation of coal mining firms, we construct regression models to analyze the impact of innovation capability. Using a sample of coal mining firms listed on the Shanghai and Shenzhen Stock Exchanges in China from 2013 to 2018, and explaining the innovation capability from three perspectives of R&D intensity, innovation level, and innovation efficiency, this paper is the first to empirically examine the relationship between innovation capability and enterprise profitability, and further investigate the impact of environmental policy on the relationship. We find that the innovation of coal mining firms can effectively promote the improvement of profit growth, especially for the coal mining firms with stronger R&D intensity and higher innovation level. After considering the constraints of environmental policy on coal mining firms, we also find that the greater the intensity of environmental policy, the stronger the positive relationship between R&D intensity and profit growth, which is the effective evidence of applying the Porter’s hypothesis to the high-polluting coal mining firms in China. The conclusions facilitate the managers of coal mining firms to further understand the impact of innovation on profitability. At the same time, the study also provides empirical evidence for policy-makers to stimulate innovation of coal mining firms from the perspective of environmental policy.

Keywords

• coal mining firms
• profit growth
• innovation capability
• environmental policy
• porter’s hypothesis
• neoclassical economic theory