Ecological compensation and breakthrough innovation: Evidence from heavily polluting firms.

The continuous deepening of the concept of green development and the increasing pressure of environmental governance leads great theoretical significance and practical value to explore the impact of the ecological compensation (eco-compensation) policy on the innovation behavior of enterprises. Taking the implementation of China's ecological compensation policy as an exogenous shock, this paper adopts a multi-period difference-in-differences (DID) model to systematically assess the impact of eco-compensation on corporate breakthrough innovation based on the data of A-share listed companies in the heavy pollution industry from 2014 to 2023. The findings indicate that eco-compensation significantly promotes breakthrough innovation activities of heavy polluting firms. Mechanism analysis further reveals that the policy indirectly drives the enhancement of firms' breakthrough innovation capability mainly by improving the level of data asset disclosure, reducing innovation risk and enhancing R&D activity. The heterogeneity analysis reveals that the eco-compensation policy promotes breakthrough innovation more significantly in firms located in regions where big data management institutions remain unreformed, data factor utilization is low, or industry-university-research collaboration is absent. This study theoretically expands the understanding of the impact mechanism of environmental regulation on enterprises' green innovation and enriches the research framework of incentives for breakthrough innovation; in practice, it provides policy references for optimizing the design of eco-compensation policies and guiding heavily polluting enterprises to achieve green transformation and high-quality development.