Can corporate green strategic actions enhance green innovation performance?

Abstract

Corporate sustainability strategies increasingly recognize green innovation as essential for competitive advantage, yet empirical understanding of how corporate green strategic actions (GSA) translate into green innovation performance (GIP) remains incomplete. Prior research has not adequately examined the internal mechanisms through which environmental initiatives influence innovation outcomes or the external conditions that strengthen this relationship. This study addresses these gaps by investigating whether GSA enhances GIP among Chinese listed firms from 2010 to 2023, while exploring the mediating roles of labor productivity and organizational absorptive capacity alongside the moderating influence of foreign trade development. Using regressions with industry and year fixed effects with 28,444 firm year observations, we find a significant positive association between GSA and GIP. Mediation analysis suggests that both labor productivity and absorptive capacity may serve as internal pathways linking environmental investments to innovation outputs. Furthermore, foreign trade development is found to positively moderate the GSA-GIP association, suggesting that international market exposure may amplify the innovation benefits associated with environmental strategies. Heterogeneity analysis demonstrates that these positive effects are more evident among non-state owned enterprises, larger firms, and companies operating outside heavy polluting industries. Robustness tests including instrumental variable estimation, propensity score matching, and Heckman selection correction confirm the reliability of these findings. This study contributes to theoretical understanding of the mechanisms and boundary conditions governing the environmental strategy and innovation relationship. The results offer practical guidance for managers designing environmental investment strategies and inform policymakers seeking to leverage international trade dynamics for promoting sustainable corporate innovation.