Impact of digital transformation on green and sustainable innovation in business: a quasi-natural experiment based on smart city pilot policies in China

The global landscape is witnessing a seismic shift propelled by the wave of the digital economy, with digital transformation emerging as a linchpin for nations striving for high-quality development. This paper navigates the intricate nexus between policy orientation and digital transformation to steer green and sustainable innovation within Chinese enterprises. Drawing on a nuanced theoretical analysis of how digital transformation intricately shapes enterprises’ green sustainable innovation, this research systematically dissects the impact by crafting a multi-temporal double-difference model rooted in a quasi-natural experiment of the Smart City Pilot policy. The results underscore the profound influence of digital transformation in propelling the green sustainable innovation of enterprises, with a particularly accentuated effect evident in non-state-owned enterprises and firms nestled in urban locales characterized by robust industrialization levels. Furthermore, we identify government innovation support and environmental governance as significant channels through which digital transformation exerts its influence, while financing constraints play a moderating role in shaping this impact. These insights offer valuable guidance for the Chinese government in formulating policies aimed at fostering green and sustainable innovation in enterprises.