Does green innovation promote financial performance of Chinese listed companies?

This study explored the impact of green innovations on a firm’s financial performance over time, considering the short-term, transitional and long-term effects. Using data from 4291 Chinese A-share listed companies between 2004 and 2021, we applied a novel long-difference multi-level fixed-effects approach to gain new insights. The findings suggest that the impact of green innovation on return on assets (ROA) is contingent upon the type of innovation, time frame and market conditions. During the transitional phase, the overall level of green innovation and its quality positively influence ROA. However, in the long run, the quantity of green innovation may adversely affect ROA. In addition, leverage emerges as a significant determinant of ROA across firms. Quantile analysis further revealed that green innovation benefits firms with lower ROA but may negatively impact those with higher ROA. These results offer valuable guidance for policymakers and corporate strategists seeking to optimise green innovation strategies for sustainable financial performance.