The Influence of Government Green Development Policy on a Firm’s Disruptive Innovation

Abstract

Government policies have impacts on the disruptive innovation behavior of local companies, especially the green development policies. This paper is based on institutional theory, using data from 170 Chinese manufacturing entrepreneurs to verify that local governments’ green development policies have an effect on firms’ disruptive innovation behavior. Based on the empirical results, we find that entrepreneurs in regions with green or sustainable development policies are more likely to engage in disruptive innovation behavior; the influence will be stronger when the firm size is bigger. The study actually demonstrates that public policy about sustainable development enacted by local governments has a significant impact on the disruptive innovation behavior of firms. The findings of this paper enriches the research on the antecedents of disruptive innovation behavior adds to the theoretical framework of disruptive innovation and institutional theory, and supplements the specific embodiment of exploring disruptive innovation in the manufacturing industry. At the practical level, this paper provides theoretical guidance for entrepreneurs to choose the right regional entrepreneurship at the personal level. In addition, it provides the theoretical basis for entrepreneurs’ strategic decision-making at the entrepreneurial level, and for local governments to encourage entrepreneurial development and regional economic prosperity at the government level.

1. Introduction

With increasing global awareness of environmental protection, the concept of green development is gradually gaining popularity, especially for manufacturing, the traditional high-pollution, high-emission industry. As global carbon emissions continue to be limited, the Chinese government has proposed the guiding principle of “achieving carbon peaking by 2030 and carbon neutrality by 2060” [1]. For the traditional manufacturing sector, the Chinese government has proposed a series of green development policies to facilitate the transformation of the manufacturing industry. Cases from China provide different answers. Taking China’s new energy vehicles as an example, with the support of the early government’s direct financial support and tax relief as well as other policies, related companies quickly initiated disruptive innovations at the technological level. Compared with almost zero exports of electric vehicles many years ago, China exported about 500,000 vehicles in 2021, which is an obvious change. In the early stages of shaping the electric vehicle market in China, several Chinese companies, including traditional car companies, undertook research and development (R&D). Today, however, only the larger BYD and Geely Automobile have a large share of the market. Additionally, three major new tram organizations that rely on traditional corporate enterprises are doing well, whereas smaller companies such as Sailin and Changjiang Automobile have failed and declared bankruptcy. In recent years, many cities have also introduced green or sustainable policies to guide the development of the manufacturing industry. For example, the Beijing Municipal Government issued the Smart Green Development Demonstration Project Implementation Plan to promote the traditional Chinese medicine industry [2]. The Shijiazhuang municipal government promotes and guides the widespread application of supply chain technology in large and medium-sized enterprises through relevant policies, which aims to realize corporate cost reduction and the increase in efficiency [3]. The Jinan municipal government formulated the 2018–2020 Low-Carbon Development Work Plan to form low-carbon industrial clusters, agricultural green recycling industry systems and low-carbon recycling industries [4]. These phenomena inspired the research interest in this paper.

The concept of disruptive innovation was first introduced by Christensen in 1997 and usually refers to the technological and simple innovation of a product or service that is designed to change the consumer landscape of an existing market by targeting a specific consumer group at a lower price and lower quality [5]. Compared to other types of innovation, disruptive innovation does not usually involve changes at the technological level, but rather the use of existing technologies and product systems to expand and develop new markets through the optimization of old processes and models [5,6]. In current academic research, disruptive innovation is rarely adopted proactively by companies because it is considered potentially damaging to successful, well-managed companies. In addition, disruptive innovation has little effect on expanding market share in mature markets. Typically, firms have achieved more significant success based on disruptive innovation in distant emerging and nonmainstream markets when the market environment has been altered by external influences such as changes in government policy [6,7,8].

Some research tried to prove that environmental regulations issued by the government could lead to certain innovations in business, such as the diffusion of existing technology, incremental changes in processes, product reformulation to product substitution, the development of new processes, etc. [9,10]. According to these findings, it is often difficult for companies to innovate quickly in their original industry because stakeholders such as the company’s suppliers do not change until they are actually regulated, thus slowing down the pace of innovation, affecting the company’s growth and even leading to its collapse [11]. To cope with environmental regulation more quickly, companies often borrow newly developed technologies from another outside industry to avoid excessive sunk costs in the conversion process. The technology borrowed from the outside can often be used to avoid the problems faced by the industry. Because technology and production standards vary considerably among industries, technology borrowed from another industry is often not regulated by that industry and can therefore quickly help companies establish a new competitive advantage in the short term [10]. Based on existing research, it is concluded that government regulation, R&D, and markets are the three levels at which the impact of government policy on corporate disruptive innovation is concentrated.

As disruptive innovation is focused on emerging markets, whereas the market environment dictates its sustainability, there are often institutional gaps in emerging markets compared to mature or saturated markets [12], and the attendant systemic risks are a unique business issue for companies in emerging markets [13]. The government plays a key role in filling gaps and mitigating risks, providing assistance to companies implementing disruptive innovations by facilitating R&D and developing markets [14].

However, current research on the impact of government on disruptive innovation is relatively incomplete, focusing on the impact of entrepreneurial characteristics or firm characteristics on disruptive innovation [15], or the impact of disruptive innovation on regional economic development [16], neglecting the government actions and policies on disruptive innovation. In particular, the Chinese perspective has seen a significant increase in successful disruptive innovation in recent years as China’s economy has grown and transformed, with the Chinese government’s policy guidance playing a unique role that is significantly different from that of other countries.

With the gradual implementation of the Made in China 2025 plan and the carbon-neutral, carbon-peak target, the concepts of green manufacturing and sustainable development are appearing more frequently in government policies and are reflected in the implementation of policies such as supply-side structural reform. The impact and long-term requirements for the manufacturing industry are also clear. Therefore, based on the institutional theory, this paper plans to explore the impact of the government’s sustainable development policies on manufacturing enterprises.

The theoretical contributions of this paper are (1) enriching the theoretical framework of disruptive innovation. The findings of this paper demonstrate that local government green policies or sustainability policies also influence firms’ strategic decisions and analyze the moderating effect of firm size on this influence process, complementing the influence of government actions and policies on disruptive innovation. (2) The paper complements the institutional theory by analyzing the relationship between sustainability policies enacted by local governments and local firms in China, enriching the study of the relationship between local policies and firm strategies and enriching the arguments for the influence of institutional theory on organizational activities. (3) This paper enriches the scope of existing research. The paper also makes a theoretical and practical contribution by examining the impact of government policies on Chinese manufacturing firms in the stage of supply-side reform and expanding the scope of application of related theoretical concepts.

The practical contribution of this paper is that it provides theoretical guidance for entrepreneurs to choose the right region to start a business from the perspective of the individual, it provides a theoretical basis for entrepreneurs to make strategic decisions based on the policy situation from the perspective of the firm, and it provides a theoretical basis for local governments to encourage the development of entrepreneurial enterprises and promote regional economic prosperity from the perspective of the government.

2. Theoretical Background and Research Hypotheses

2.1. Institutional Theory

Institutional theory explores the influence of institutions on organizational activities [17] and explains the convergence of actions of all organizations in the same field under the influence of institutions [18]. Institutional theory assumes that institutions are an important part of the environment, encompassing many elements such as laws, ethics, customs, and social and professional norms. At the individual, organizational, and inter-organizational levels, it influences the thinking and behavior of managers [19], forcing them to follow, consciously and unconsciously, normative habits, customs, and traditions [20], and these pressures from government, professional associations, and social expectations define what is socially acceptable and expected of organizations. These pressures from government, industry alliances, and social expectations define what is socially acceptable and desirable in terms of organizational behavior, ultimately leading to the harmonization of organizational action within the institutional domain [18]. Institutional theory suggests that a good institutional environment provides favorable market incentives and availability of capital for the development of firms. Therefore, when organizations comply with institutional pressures and follow social norms that govern their structures and processes, they operate with greater legitimacy, more resources, and greater viability.

The positive impact of government policy is more evident in firms that engage in disruptive innovation because of the higher level of uncertainty and the fact that their innovations are initially available only in emerging or small markets [21]. The most direct manifestation of this is the direct nurturing of industries through policy development [22], including the promotion of regional industry clusters, the establishment of national standards for the industry, the promotion of knowledge exchange to encourage technological upgrading, and the involvement of industry players in the development of appropriate regulations, which can be significant to the success of firm innovation, particularly disruptive innovation [8,23]. The manufacturing industry, by its very nature, is more susceptible to policy intervention and influence, especially at a time when environmental protection is increasingly important. The influence of policy on manufacturing is manifested in various ways, first at the level of industrial agglomeration, for example, in Shenzhen, where the influx of population and urbanization was rapidly achieved through the agglomeration of manufacturing industries at the beginning of the reform and opening-up period, and then in the 21st century, with policy changes to other regions, resulting in the current pattern of industrial upgrading [24]. At the level of corporate innovation and sustainability, the boom in China’s electric vehicle and electric car industries in recent years, as evidenced by the rise in the production of new energy vehicles, is a clear example of how policy has facilitated innovation in manufacturing firms [25,26].

2.2. Hypothesis Development

For enterprises, especially in manufacturing, the green development policies or sustainable development policies promulgated by the government have a significant impact in three aspects: regulatory pressure, assisting research, and developing markets.

In terms of regulatory pressure, in recent years the Chinese government has increasingly focused on the sustainable development of enterprises, and new policies will therefore increase the demand for green development and sustainable development, particularly in terms of restricting the environmental protection of enterprises in their production and operation processes. The adoption of new technologies from other industries is a typical means of disruptive innovation in the face of government policy and environmental regulation. In addition to borrowing new technologies from other industries, regulated firms are also more likely to develop products that are different from those in the mainstream market, which have new characteristics and attributes and therefore require different resources and technologies [27]. The impact of policy and regulation on the firm’s resources can be avoided, thus maintaining the firm’s competitive advantage. This effect is more pronounced in entrepreneurial firms, which are more flexible [28], less prone to strategic change [29], and more likely to undergo transformation.

As for assisting R&D, the government could help companies accumulate technologies needed for disruptive innovation at multiple levels, including resources, regulation, and infrastructure [30]. Innovative firms offer opportunities to better understand factors that may influence market preferences, existing environments, and production processes [31,32]. In addition, governments could also intervene to promote the replacement of existing outdated technologies through policy guidance and encourage mainstream consumers to adopt disruptive innovations that benefit the overall welfare of society [33]. In this process, firms that engage in disruptive innovation could resolve as much as possible the commercial and technological uncertainties that may arise before the results are used [34], and the government plays an important role in the process of improving the disruptive innovation success rate and risk reduction.

Governments also play a key role in developing markets [10,31]. The government encourages and helps enhance innovation capabilities at the market level rather than directly cultivating disruptive innovation at the initial stage [35]. Governments often help businesses create niches by influencing consumer buying behavior, such as through public procurement rules, tax incentives, or consumer subsidies. These moves close the gap between innovators and mainstream markets and protect disruptive innovations when market share is insufficient in the early stages [10,35]. The large-scale adoption of disruptive innovations often relies on significant changes across the supplier network and for enterprises not only to develop new technologies but also to stimulate the development of new ecosystems of suppliers and complementors. This process can be achieved on its own, and the role played by the government is reflected here [36,37].

Therefore, local firms are more likely to engage in disruptive innovation when the local government enacts a green development policy than in other regions:

Hypothesis 1.

Green development policies enacted by local governments will promote disruptive innovation among entrepreneurial firms.

The size of a firm has a significant impact on the analysis of disruptive innovation by firms. Traditionally, many scholars have argued that disruptive innovation occurs mostly in smaller firms [11], but others have argued that large firms can also use disruptive innovation thinking to undertake similar innovation activities internally. According to the resource-based view, the growth and strategic decisions of entrepreneurial firms are based on the acquisition and use of resources, and smaller firms do not have sufficient access to resources for disruptive innovation, which is an organizational activity that requires more human and material resources [30,38]. Differences in firm size also lead to changes in the impact of policies.

The influence of government policy is more pronounced for larger firms than for smaller ones. First, disruptive innovation, such as the use of technologies from other industries to develop new products, is common when government policies increase the regulation of firms [11]. As government regulation is usually more demanding for larger firms, the tendency for larger firms to choose disruptive innovation to gain technological advantage and relative competitiveness is more pronounced, and the facilitative effect of government policy is reinforced [30].

Second, the growth and strategic decisions of entrepreneurial firms are based on the acquisition and use of resources, and when firms are small (including start-up and development phases), there is often a lack of legitimacy [39]. The likelihood of firms undertaking the R&D activities necessary to achieve disruptive innovation is then reduced [38]. Large-scale firms, in contrast, are able to gather sufficient resources in time to undertake the R&D activities required for disruptive innovation when guided by government policy, and thus the policy is more effective in facilitating this.

Finally, firm size also determines a firm’s market position and adaptability to the market. In general, stakeholders in the market tend to perceive larger firms as more powerful, and this recognition is often the basis for cooperation [30]. In addition, because smaller start-ups lack sufficient information to gain market recognition, size is the basis for a firm’s effective position in a newly developed market [40]. Therefore, larger firms are more likely to have a broader network. According to the above, government policy fosters new markets for disruptive innovation outcomes, and larger firms have broader social networks and higher market recognition, and are therefore more likely to gain market recognition for their innovations, have greater market capture capabilities, and are therefore more inclined to pursue disruptive innovation strategies [30]. The policy effect is more pronounced for larger firms.

Therefore, when the size of the entrepreneurial firm is large, the firm has a greater ability to respond to the government’s green development policy and is more likely to develop a disruptive innovation strategy to gain a competitive advantage:

Hypothesis 2.

The larger the size of the firm, the greater the impact of green development policies on the firm’s disruptive innovation strategy.

Figure 1 presents the theoretical framework of this study, explaining the theoretical links between the variables studied. In conclusion, government policies have effectively promoted the subversive innovation behavior of local enterprises, and in the process, the scale of enterprises has exerted a strengthening-oriented moderating effect.

3. Materials and Methods

3.1. Data Sources

To address the research questions posed in this paper, data were collected on the variables mainly through a questionnaire survey. We surveyed 1117 entrepreneurs across China about their personal and business information in November 2018, and we surveyed them about the level of disruptive innovation in their businesses in March 2019, and then tracked 285 valid samples. Because the research questions in this paper focus on government green policies, and most of these in China concern the manufacturing industry, only manufacturing firms were selected for analysis, resulting in a sample size of 170 firms.

As shown in

Table 1. Descriptive statistics.

Characteristics		Frequency	Percentage%
Gender	Male	121	71.2
	Female	49	28.8
Age	20–30 years	8	4.7
	31–40 years	96	56.5
	41–50 years	56	32.9
	51 years and over	10	5.9
Marital status	Married	132	77.6
	Other	38	22.4
Number of business ventures	0	99	58.2
	1	59	34.7
	2	8	4.7
	3	2	1.2
	4	2	1.2
Household investment	Yes	56	32.9
	None	114	67.1
Age of business	4 years and less	64	37.6
	5–8 years	106	62.4
Education level	Junior High School or below	1	0.6
	High School	34	20.0
	college	87	51.2
	Bachelor’s degree and above	48	28.2
Region	In the municipality	31	18.2
	Not in the municipality	139	81.8
Industry Distribution(manufacturing)	Agricultural and sideline food processing industry	39	22.9
	Food manufacturing;	91	53.5
	Beverage manufacturing;	6	3.5
	Textile industry;	3	1.8
	Manufacturing of textiles, garments, shoes and hats;	6	3.5
	Leather, fur, feather (velvet) and their products;	4	2.4
	Wood processing and wood, bamboo, rattan, palm and grass products;	6	3.5
	Furniture manufacturing;	15	8.8
Total sample		170	100

Data source: compiled from text.

, in the final sample distribution of this paper, there were 121 male and 49 female entrepreneurs; 96 entrepreneurs were age 31–40 years old, accounting for 56.5%; and the education level of entrepreneurs was mainly at the college level, accounting for 51.2%. In terms of marital status, 132 entrepreneurs were married, accounting for 77.6% of participants, whereas 38 entrepreneurs were of other status, including unmarried, divorced, and widowed. In addition, 99 entrepreneurs were mostly first-time entrepreneurs, accounting for 58.2% of participants. The majority of the sample firms in this paper were established between 5 and 8 years ago, accounting for 62.4% of all firms. The largest number of enterprises with less than 30 employees was 127 (74.7%). Thirty-one enterprises (18.2%) were located in municipalities. The number of enterprises with family investment was 56 (32.9%).

The industry distribution shows that most of the samples are distributed in the two sub-sectors of agricultural and sideline food processing and food manufacturing, which is similar to the industrial distribution in China. Since high-tech manufacturing requires a large amount of investment in research and development and equipment scale, this is difficult for start-up companies to achieve. Therefore, the relevant data of the high-precision manufacturing industry are missing in the research samples that focus on entrepreneurial enterprises in this paper. In addition, the high-tech manufacturing industry faces less environmental protection policy pressure than the traditional manufacturing industry, so it also lacks the impetus for disruptive innovation. Therefore, the samples in this paper are representative of Chinese entrepreneurial enterprises and better reflect the research questions of this paper.

3.2. Dependent Variable: Disruptive Innovation

This paper measures disruptive innovation by referring to the maturity scale developed by Govindarajan and Kopalle, answering five questions on a 5-point Richter scale, including “In the past five years, the firm has developed new products and services that are characterized by disruptive innovation”, “Firms rarely develop disruptive new products and services or adopt disruptive business models”, “Firms lag far behind their competitors in introducing disruptive innovations”, “In the past five years, firms have developed new products and services”, or “Within the last five years, the firm has developed new products and services or adopted new business models that are highly attractive to different customer segments”, and “Within the last five years, the firm has developed new products and services that have attracted customers in the mainstream market over time because the new products and services meet the needs of customers in the mainstream market”. A score of 1 means ‘very unlikely to meet’, and 5 means ‘very likely to meet’.

Because the indicators of disruptive innovation are measured by a scale, the reliability and validity of the scale needs to be tested before it can be used. In this paper, the reliability and validation factor analysis of the scale was conducted using SPSS 20.0. The reliability of the Disruptive Innovation Scale in this sample was 0.845, indicating good reliability. The results of the confirmatory factor analysis are also good, with the χ²-distribution less than 2, CFI value of 0.999 and RMSEA value of 0.030, indicating that the scale has good validity.

3.3. Independent Variable: Green Development Policy

In this paper, the independent variable is the number of green development policies issued by the local government of the enterprise. The data of the independent variable is collected from official government websites. In this paper, the municipal government where the enterprise is located is used as the scope of the policy definition. The Chinese government provides an open government section on its website. In this paper, we search for “green development” and “green manufacturing” in the governmental disclosure section and focus only on policies issued by municipal government agencies, such as the municipal party committee office and the municipal government committee. After the search, the policies were further read and filtered to ensure that the impact of the policies included the manufacturing industry that is the focus of this paper. The time frame for this variable is January 2018 to March 2019. A dummy variable is used to control for government green policies: if there is a government policy on green development in the time period, then the variable takes the value of 1, if not it is 0.

3.4. Moderating Variable: Firm Size

This paper uses the size of the firm’s assets obtained in the first survey as a measure of this variable. Asset size is a more commonly used measure of firm size [40]. Because of the large differences in machinery and equipment and so on, between manufacturing segments, asset size varies considerably in value, and this variable is used in this paper as a logarithmic regression.

3.5. Control Variables

This study also controlled for the following variables that could affect the disruptive innovation:

3.5.1. Personal-Level Variables

Because entrepreneurs themselves have a great influence on the strategic decision of the firm, this paper controls for some factors that may influence the strategic decision of entrepreneurs, such as gender, age, marriage, and education level, based on previous research [40].

3.5.2. Firm-Level Variables

This paper controls for a number of characteristics of entrepreneurial firms. The firm’s life cycle has a significant impact on its innovation strategy decisions, so this paper controls for the firm’s year of establishment. Because the entrepreneur’s experience has a significant impact on their innovation behavior [41], this paper uses a dummy variable to control for whether the entrepreneur has entrepreneurial experience. This paper also uses two variables to control for the decision-making process of the entrepreneurial firm. In the questionnaire, the indicator of ”the proportion of family contributions in the entrepreneurial firm” measures the control over the firm. In addition, the proportion of males in the TMT team is controlled for to avoid the influence of TMT on innovation strategy. Because firm performance has a significant impact on innovation, the firm’s sales growth rate in the year prior to the time of the survey is also controlled for.

3.5.3. Macro-Level Variables

In this paper, we control for the industry segment in which the firms are located and set three dummy variables for the top three industries in terms of number. ‘Ind 1’ is the handicraft industry, ‘Ind 2’ is the furniture industry, and ‘Ind 3’ is the food industry. This paper also controls for the degree of competition in the firm’s location, including Sales Growth Rate, R&D investment, and local Environment Competitive [42].

4. Results

4.1. Descriptive Statistics and Correlation Tests

Table 2. Descriptive statistics.

	Mean	SD	VIF
Disruptive Innovation	2.761	0.565
Green Policy	0.741	0.439	1.437
Firm Size	0.074	0.970	1.465
Gender	0.712	0.454	1.139
Age	17.388	19.469	2.322
Marriage	0.776	0.418	1.243
Education	4.071	0.710	1.425
Firm Age	5.200	1.966	1.449
Ind 1	0.088	0.284	1.162
Ind 2	0.088	0.284	1.244
Ind 3	0.076	0.267	1.191
Family Investment	0.318	0.467	1.217
Male TMT	0.658	0.372	1.147
Entrepreneurial Experience	0.011	0.747	1.370
Sales Growth Rate	0.598	14.680	1.275
R&D	1.176	1.505	1.387
Environment Competitive	0.028	0.315	1.243

reports the descriptive statistics of the main variables involved in this study. The absolute value of the correlation coefficient between all independent variables, dependent variables, and moderating variables was 0.466, indicating that there was no serious co-linearity between the variables. The average VIF is 1.357, and the biggest VIF (2.322) does not exceed 10, which means there is no serious multicollinearity.

Table 3. Correlation Matrix of the Main Variables.

	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17
1. Disruptive Innovation	1.000
2. Green Policy	0.050	1.000
3. Firm Size	−0.080	0.096	1.000
4. Gender	0.062	0.009	0.165 **	1.000
5. Age	−0.036	0.414 ***	0.072	−0.090	1.000
6. Marriage	−0.057	0.005	−0.078	−0.123 *	−0.193 ***	1.000
7. Edu	−0.011	−0.112 *	−0.093	0.082	−0.466 ***	−0.066	1.000
8. Firm Age	−0.065	0.300 ***	0.076	−0.041	0.399 ***	0.076	−0.231 ***	1.000
9. Ind 1	0.073	−0.195 ***	−0.110 *	−0.031	−0.113 *	−0.032	−0.002	−0.095	1.000
10. Ind 2	−0.052	0.089	−0.007	0.015	0.264 ***	−0.231 ***	−0.148 **	−0.021	−0.097	1.000
11. Ind 3	−0.106 *	0.069	−0.148	−0.061	0.182 ***	−0.058	−0.060	0.174 **	−0.090	−0.090	1.000
12. Family Investment	0.114 *	0.028	−0.061	−0.096	0.223 ***	−0.119 *	−0.086	0.137 **	0.055	0.010	−0.101 *	1.000
13. Male TMT	0.068	−0.073	0.095 **	0.174 **	0.052	−0.057	−0.024	0.160 **	0.104 *	0.011	0.062	−0.091	1.000
14. Entrepreneurial Experience	0.048	0.073	0.213	0.011	0.351 ***	−0.021	−0.315 ***	0.085	−0.024	0.115 *	0.065	0.114 *	0.058	1.000
15. Sales Growth Rate	−0.037	0.141 **	−0.017 **	−0.184 ***	0.245 ***	0.022	−0.130 **	−0.023	−0.110 *	−0.064	0.028	−0.080	−0.036	−0.013	1.000
16. R&D	0.094	−0.047	0.429	0.023	0.029	−0.040	−0.023	0.016	−0.147 **	−0.009	−0.078	0.080	−0.017	0.075	0.161 **	1.000
17. Environment Competitive	0.141 **	0.156 **	−0.078 **	−0.171 **	0.155 **	0.006	−0.034	0.112 *	0.017	0.005	0.163 **	0.077	0.099	0.090	−0.010	−0.076	1.000

Notes: * p < 0.10, ** p < 0.05, *** p < 0.01.

reports the correlation matrix of the main variables involved in this study. Table 2 shows that there is a significant correlation between the degree of disruptive innovation, regional government green development policy, firm size, and other control variables, and there is no abnormality in the mean and standard deviation of each variable. Similarly, there is a significant positive relationship between regional government green development policy and firm size, so there may be a moderating effect.

4.2. Results of OLS Regression Analysis

Table 4. Regression Results.

	Model (1)	Model (2)	Model (3)
Green Policy		0.193 * (−1.685)	0.218 * (−1.907)
Firm Size		−0.126 ** (−2.382)	−0.169 *** (−2.982)
Green Policy × Firm Size			0.274 ** (−1.99)
Gender	0.087 (−0.853)	0.095 (−0.931)	0.109 (−1.078)
Age	−0.002 (−0.500)	−0.003 (−0.939)	−0.003 (−1.046)
Marriage	−0.081 (−0.709)	−0.121 (−1.071)	−0.063 (−0.542)
Edu	−0.043 (−0.603)	−0.065 (−0.916)	−0.069 (−0.971)
Firm Age	−0.022 (−0.842)	−0.025 (−0.974)	−0.03 (−1.172)
Ind 1	0.082 (−0.514)	0.089 (−0.559)	0.075 (−0.474)
Ind 2	−0.147 (−0.876)	−0.189 (−1.139)	−0.182 (−1.104)
Ind 3	−0.221 (−1.271)	−0.286 (−1.636)	−0.228 (−1.299)
Family Investment	0.12 (−1.188)	0.091 (−0.91)	0.108 (−1.083)
Male TMT	0.091 (−0.736)	0.141 (−1.145)	0.14 (−1.153)
Entrepreneurial Experience	0.025 (−0.392)	0.059 (−0.914)	0.07 (−1.093)
Sales Growth Rate	−0.001 (−0.211)	−0.002 (−0.575)	−0.003 (−0.815)
R&D	0.036 (−1.202)	0.074 ** (−2.24)	0.086 *** (−2.603)
Environment Competitive	0.314 ** (−2.174)	0.271 * (−1.892)	0.292 ** (−2.049)
Constant	2.953 *** (−7.705)	2.920 *** (−7.747)	2.859 *** (−7.631)
Adjust R2	0.002	0.037	0.055
F	1.026	1.406	1.582
N	170	170	170

Notes: All results are two tails test. T-value in parentheses. * p < 0.10, ** p < 0.05, *** p < 0.01.

provides the results of the regression analysis for the main effects as well as the moderating effects. Model (2) includes only the first-order forms of the control and moderating variables, whereas in model (3) a second-order interaction term between the independent and moderating variables is introduced to verify the moderating effect. The results show that government sustainability policies have a significant positive effect on firms’ disruptive innovation activities (Model 2, β = 0.193, p < 0.01; Model 3, β = 0.218, p < 0.01), implying that firms’ disruptive innovation activities are more effective when they are supported by government sustainability policies. This result is logical in light of the many real-life examples of government policies promoting innovation, and therefore hypothesis H1 is tested. Model (3) shows that firm size and government sustainability policies have a significant positive effect on firms’ disruptive innovation activities (model 3, β = 0. 274, p < 0.01). Because the second-order interaction parameters are of the same sign as the main effect parameters, this implies that firm size reinforces the positive impact of government sustainability policies, and hypothesis H2 is tested.

4.3. Illustration of the Moderating Effects

To further explain the role of firm size in reinforcing the positive impact of government sustainability policies on disruptive innovation, this study plots the interaction effects based on the standardized coefficients of the relevant variables in the empirical results (shown in Figure 2). It can be seen that firm size plays a significant role in reinforcing the main effect. The success rate and concomitant benefits of disruptive innovation are much greater for larger firms than for smaller firms in regions with richer government policies on sustainable development.

Figure 1 shows that the size factor itself has a negative effect on disruptive innovation (Model 2, β = –0.126, p < 0.05; Model 3, β = –0.169, p < 0.01); that is, smaller firms are more successful and more effective at disruptive innovation than larger firms, which is in line with previous research findings that smaller firms are more courageous in innovation and more able to bear the consequences of failure [10]. This is consistent with previous research that has found that small firms are more willing to innovate and more able to bear the consequences of failure [10]. When the innovation process is influenced by government policy, the positive effects of policy are reinforced by firm size. In contrast, when the innovation process is influenced by government policy, firm size reinforces the positive effects of policy, because large firms have greater legitimacy and market position, which directly determines their ability to access resources and receive more attention from government than small firms. In the end, in the process of the government’s sustainable development policy promoting the disruptive innovation activities of enterprises, the size of the enterprise plays a positive moderating role.

4.4. Robustness Test

This paper uses whether or not the local government has enacted a sustainable development policy as the independent variable for robustness testing. This variable is obtained through the government public affairs platform and is used to reflect whether the government has formulated green policies. The biggest VIF is 2.295; the average VIF is 1.130.

Robustness Test results are shown in

Table 5. Robust test Results.

	Model(4)	Model(5)
Sustainable Policy	0.144 (1.232)	0.173 (1.476)
Firm Size	−0.124 ** (−2.324)	−0.158 *** (−2.786)
Sustainable Policy × Firm Size		0.242 ** (1.690)
Control Variables	Controlled	Controlled
Adjust R2	0.029	0.040
F	1.313	1.419
N	170	170

Notes: All results are two tails test. T-value in parentheses. ** p < 0.05, *** p < 0.01.

. Sustainable development policies tend to be enacted less frequently than green policies, and most do not focus exclusively on the manufacturing sector, but on a broader range of industries, so the main effect is slightly weaker in the robustness test, but the direction of the main effect remains the same as above, and this variable is marginally not significant (p = 0.142). The moderating variable still showed significant results (b = 0.242, p < 0.01), suggesting that the robustness of Hypothesis 2 of this paper was still validated.

5. Discussion

This paper uses data from 170 Chinese manufacturing entrepreneurs to verify that local governments’ green development policies have an impact on firms’ disruptive innovation behavior. Based on the results of the empirical analysis, we find that entrepreneurs in regions with green or sustainable development policies are more likely to engage in disruptive innovation behavior. This shows that the public policies on sustainable development formulated by local governments have a significant impact on the disruptive innovation behavior of enterprises. In addition, this study also confirms that in the process of the positive impact of the government’s sustainable development policy on disruptive innovation, the size of the firm plays a positive moderating role, that is, the positive impact of the policy will be enhanced by the size of the firm. The reality is that in regions where government policies for sustainable development are more abundant, the success rate of disruptive innovations and the attendant benefits of large companies are much greater than those of small companies. The findings of this paper enrich the research on the antecedents of disruptive innovation behavior and have both theoretical and practical contributions.

First, this paper enriches the theoretical framework of disruptive innovation. In previous studies, scholars have mostly focused on the impact of entrepreneurial characteristics and firm characteristics on disruptive innovation [14], or the impact of disruptive innovation on firm development and regional economic development [10], neglecting the impact of macro socioeconomic factors on disruptive innovation. The findings of this paper demonstrate that local governments’ green or sustainable development policies also influence firms’ strategic decisions and have an impact on the ultimate success and effectiveness of disruptive innovation. In addition, the paper analyzes the moderating effect of firm size on this influence process. The results of this paper suggest that disruptive innovation in large firms in China is more likely to be influenced by government sustainability policies, especially when the success rate of disruptive innovation and the accompanying benefits increase under government guidance. The findings of this paper contrast with previous studies based on European and American markets and enrich the existing theoretical framework in the study of government policy and corporate innovation.

Second, this paper makes a contribution to institutional theory, particularly in relation to the study of government sustainable development policies. In recent years, the impact of government sustainable development policies on socioeconomic and business operations has received much attention from scholars, especially on whether sustainable development policies lead to sustainable corporate development and increase corporate social responsibility behavior [42,43]. However, little attention has been paid to the impact of these policies on firms’ innovation strategies. In this paper, we analyze the sustainable development policies enacted by local governments and the strategic behavior of local firms in China to verify the impact of policies on firms’ disruptive innovation strategies. In particular, the paper explores the pathways and mechanisms by which green development and sustainable development policies influence firms’ disruptive innovation behavior and demonstrates that the implementation of sustainable development policies may bring about financial support and market building effects on the firm side, and market cultivation and consumer preference guidance on the consumer side, ultimately facilitating firms’ disruptive innovation at the organizational level. In institutional theory, policy is often seen as part of the institutional environment, and the findings of this paper distinguish it from previous approaches that treat policy change as only a change in the institutional environment, and study it ambiguously. This paper contributes to the theoretical evidence on the impact of institutional theory on organizational activity by quantifying and analyzing the relationship between regional sustainable development policies and disruptive innovation in firms.

Finally, this paper adds to the existing body of research by exploring how disruptive innovation is manifested in the manufacturing sector. In the past, most scholars have focused on the phenomenon of disruptive innovation in the high-technology industry. For the traditional manufacturing industry, scholars have focused only on the high-end manufacturing industry, and there is a lack of analysis of disruptive innovation in this industry. This paper analyzes the impact of government policies on the disruptive innovation strategies of manufacturing firms of different sizes and extends the application of the theoretical concepts to demonstrate that manufacturing industries also exhibit high levels of disruptive innovation behavior when stimulated by policies. For example, with the support of national export tax rebates and subsidies, Chinese PV has successfully implemented and disseminated disruptive innovations, gaining an edge in the production of solar modules such as monocrystalline silicon, polysilicon, aluminium paste, EVA, and ultra-white glass and connectors, with the total sales of Chinese PV products accounting for 70% of the world market share in 2020.

At the individual level, this paper provides theoretical guidance for entrepreneurs in choosing the right region to start a business. According to the findings of this paper, firms in areas where local governments have enacted green or sustainable development policies are more likely to engage in disruptive innovation behavior, and therefore the local market tends to be more competitive. Such areas are more suitable for entrepreneurs who have a high need for achievement or who have more social resources to start their own businesses. In contrast, regions where local governments do not focus on green or sustainable development policies are more suited to survivalist entrepreneurship, which means that they could solve their own survival problems and grow their wealth steadily through sound business practices.

At the entrepreneurial level, this paper provides a theoretical basis for the strategic decisions of entrepreneurs in the light of policy. According to the findings of this paper, start-ups are more likely to engage in disruptive innovation following the announcement of a green or sustainable development policy by the local government [42,44]. Disruptive innovation is more risky, but if successful, it can yield additional benefits. Manufacturing firms are less innovative than their high-tech counterparts, but still need to be proactive in adapting their strategies in the face of policy changes to maintain a competitive edge in the marketplace. Similarly, companies competing in the same industry need to pay more attention to the innovative behavior of companies in other regions. Especially when local governments have not yet enacted green or sustainable development policies, companies need to keep their strategies dynamic so that they are not left behind by disruptive innovations from other local companies.

At the governmental level, this paper provides a theoretical basis for local governments to encourage entrepreneurship development and promote regional economic prosperity. In the current economic downturn caused by the COVID-19 epidemic, entrepreneurial enthusiasm has declined significantly in most regions. Manufacturing companies have been the most affected by the epidemic, both on the supply and demand sides, with the manufacturing PMI falling to its lowest level in the last decade in the first eight months of 2022. As the national agenda of Made in China 2025 continues to advance, and the “carbon-peak, carbon-neutral” concept guides China’s manufacturing industry, the Chinese manufacturing industry needs to achieve results in the direction of green and sustainable development, which cannot be achieved without the implementation of enterprise innovation, especially the implementation and application of disruptive innovation. This paper provides the government’s policy support for enterprise disruptive innovation and contributes to the theoretical basis for government policy support for disruptive innovation.

6. Conclusions

This paper analyzes the impact of government sustainable development policies on the strategic decisions of disruptive innovation in entrepreneurial firms, using a typical developing country, China, as an example. Based on the data of Chinese manufacturing entrepreneurs, this paper proves that the public policies on sustainable development formulated by local governments have a significant impact on the disruptive innovation behavior of enterprises. And in this process, the size of the firm played a role in regulating the direction of strengthening. The results of this study show that in regions with green or sustainable development policies, entrepreneurs are more likely to engage in disruptive innovation behavior, and the larger the size of the firm, the greater the impact of the policy. The findings of this paper enrich the research on the antecedents of disruptive innovation behavior in both theory and practice.

The limitation of this paper is that since only one country is selected for analysis, it is doubtful whether the research results can be generalized to developed countries. In addition, the Chinese market is characterized by strong government power and influence on business operations. Furthermore, the stage of development in China makes the implementation of green or sustainable development policies more demanding, which enhances the contextual nature of the findings. In future research, macro factors such as government power and industry development stage can be incorporated into the study by comparing different countries to draw more robust conclusions. Furthermore, since the strategic outcomes of disruptive innovations are also difficult to measure on a large scale, our approach to measuring disruptive innovations is somewhat subjective. In future research, we will try to use other objective methods to obtain more objective conclusions.

Similarly, in our follow-up research, we will try to compare the possible effects of green or sustainable policies on corporate disruptive innovation in different regions. Furthermore, in addition to adding more data from developing countries, the difference in the impact of green or sustainable policies on corporate disruptive innovation among different industries in the same country is also worthy of attention. Whether the impact of green or sustainable policies on corporate disruptive innovation in different periods is similar, and whether the degree of impact is regulated by other factors, these studies need to be carried out in the future.