Go for exploratory innovation: does green finance matter?

Purpose This study aims to enrich the literature on corporate innovation financing by examining how green finance (GF) policy affects the exploratory innovation (EI) of Chinese A-share listed firms. Considering China’s distinctive political landscape, the role of the government–firm relationship in GF and EI is particularly noteworthy. Design/methodology/approach This study uses panel data from 731 Chinese A-share listed firms over the period from 2012 to 2021 to investigate the relationship between the GF policy and corporate EI by using the propensity score matching-difference-in-differences model. The empirical analysis includes benchmark regression, mediation analysis and moderation analysis. Findings GF policy significantly promotes corporate EI. It alleviates corporate financing constraint, increases executives’ environmental awareness and reduces their short-termism behaviors, ultimately promoting EI. Furthermore, the policy effect is stronger in samples with high innovation support, coastal location, high pollution and strong industrial competition. The moderating mechanism indicates that the government–firm relationship strengthens the GF policy’s promotional effect on EI. Notably, EI improves both the financial and green performance within firms. Practical implications These findings of this study may interest regulators, businesses and investors who recognize the importance of GF and the government–firm relationship in increasing investment in innovation and promoting R&D activities. Originality/value Based on the development dilemma of EI, this study provides critical insights into the institutional context shaped by GF policy. It highlights environmental regulation and financial support as the key factors in facilitating EI by firms, as well as the unique advantage of the government−firm relationship.