Fall into “Punishment Trap”: Does Faith-breaking Punishment Depress the Firm Innovation—Evidence from Wastewater National Specially Monitored Firms

Faith-breaking punishment has effectively controlled firm pollution, but little attention has been paid to the impact of faith-breaking punishment on firm innovation. Based on the institution-based view, this paper proposed "Punishment Trap" hypothesis on the mechanism between faith-breaking punishment and firm innovation, and used 2SLS to regress the model of cross-section data on 758 wastewater national specially monitored firms from Beijing-Tianjin-Hebei region, Yangtze River Delta and Pearl River Delta. The main conclusions are:(1)there is a significant negative causal relationship between faith-breaking punishment and firm innovation:the R&D activities of firms falling into "punishment trap" have been seriously depressed, and the heavier the punishment, the lower the R&D output;(2)further investigations on firm heterogeneity confirm that:the impact of faith-breaking punishment on firm innovation differs from SOE to Non-SOE, and faith-breaking punishment has a positive effect on firm innovation of SOEs. Finally, robust tests testify the reliability of the conclusions.