The impact of green finance on the quality of green innovation: evidence from Chinese listed firms

This study investigates the asymmetric impact of green finance on corporate innovation quality, distinguishing between high-value substantive and low-value strategic innovation. Using a sample of Chinese A-share listed firms from 2012 to 2023, we identify a pronounced ‘strategic decoupling’ effect: green finance significantly promotes strategic innovation but fails to stimulate substantive breakthroughs. Mechanism tests reveal that this resource misallocation is primarily driven by governance deficiencies, specifically weak monitoring from green investors, insufficient TMT green cognition, and intense reputational pressure from low ESG ratings. This trend is most pronounced in polluting industries and among firms facing high financial constraints. Crucially, while both innovation types bolster corporate market ratings, only substantive innovation effectively translates into superior profitability. These findings suggest that to ensure green finance drives genuine technological progress, policy interventions must focus on strengthening corporate governance and internal oversight.