It examined the contingent effects of environmental regulations on the two types of innovation approaches, namely exploration and exploitation. By matching multiple sources of secondary data, it finds that firms generate strong incentives to pursue exploration but not exploitation when facing stringent environmental regulations. Furthermore, the effectiveness of environmental regulations is contingent on institutional contexts. Uncertainties caused by the change of local officials may undermine the positive influence of regulations on innovation. Likewise, the “bureaucratization” make environmental regulations less effective. It extends the research on antecedents of exploration and exploitation, and also reconciles the inconsistency of prior findings.