Abstract
Manufacturing enterprises is a country's economic mainstay. However, their longtime extensive growth pattern of "high growth and high emission" has brought huge environment pollution and restricted sustainable development. Under the circumstance of carbon reduction and global green development, market-incentive environmental regulation (MER) has attracted the attention of scholars and become a kind of important methods of encouraging manufacturing enterprises green growth. Presently, two fairly distinct viewpoints of "Follow Cost" and "Porter Hypothesis" both have their own supportive research results, and the explanation for the role of MER is completely opposite. What's more, empirical research at the enterprise level is scarce. Therefore, this study makes a further analysis from the perspective of enterprises heterogeneous innovation ability. Guided by the classic theory of "Follow Cost" and "Porter Hypothesis", this study aims to evaluate the applicable conditions of MER's environmental improvement effect, and testing the differential impact mechanism of MER on enterprise Green Total Factor Productivity (GTFP), enterprise Green Technological Change (GTC) and enterprise Green Efficiency Change (GEC). All these give theoretical and empirical supplementation for the rationality of related theories. This study examines the hypotheses and mechanism according to 1220 Chinese manufacturing listed companies data 2011-2020. The empirical results indicate that: (1) In short term, MER has a significant positive impact on GTC, and a significant negative impact on GTFP and GEC. (2) As innovation driven factors, both enterprise R&D investment and innovation output play the mediating role. (3) Heterogeneity analysis indicates that the impact mechanism varies depending on enterprise industry-type, location and digital level. Thus, policymakers should develop appropriate MER policies, and manufacturing enterprises should strengthen technological innovation to help achieve environmental sustainability and profit performance.