Green credit policy and corporate green innovation

Abstract

This study investigates how Green Credit Policy (GCP) influences corporate green innovation (GI) through a comprehensive empirical analysis of Chinese listed firms from 2009 to 2022. Employing a difference-in-differences approach with 29,122 firm-year observations, we document that the implementation of Green Credit Guidelines in 2012 significantly enhances firms’ environmental innovation output, with the causal relationship validated through parallel trends analysis, placebo tests, and propensity score matching. Our investigation reveals two key financial mechanisms: GCP promotes green innovation by alleviating financing constraints and reducing financing costs, creating a supportive environment for environmental technology development. Additionally, digital transformation positively moderates this relationship, indicating that firms with superior digital capabilities respond more effectively to environmental credit policies. Further, a heterogeneity analysis shows that GCP has a stronger impact on state-owned enterprises (SOEs) than non-SOEs, suggesting that government-controlled firms align more closely with national sustainability goals. Industry variations also emerge, with non-heavy polluted industries benefiting more from GCP, while firms in high-pollution sectors experience weaker innovation effects, likely due to compliance-driven financial reallocation rather than proactive sustainability investments. These findings contribute to understanding how financial regulations drive corporate environmental innovation, emphasizing the role of firm characteristics and industry dynamics in shaping policy effectiveness.