Boosting corporate green innovation in turbulent markets: the role of government procurement

This paper differentiates market demand into demand upturn and downturn and investigates how government procurement affects corporate green innovation across these demand conditions in China. Our findings show that enterprises reduce green innovation during demand downturn but increase it during upturn. Government procurement mitigates the negative impact of downturn on green innovation, while its effect during upturn remains statistically insignificant. Mechanism analyses indicate that government procurement functions by stabilizing corporate development expectations and easing financing constraints. Heterogeneity analyses further indicate that the impact of government procurement varies with firms’ cash holdings, ownership, degree of internationalization, and pollution type, and is stronger when procurement is persistent or non-local. Moreover, government procurement is particularly effective under persistent rather than episodic downturn. Importantly, the role of procurement during downturn is concentrated in substantive green innovation. Finally, its effectiveness is greater in regions with weaker environmental regulations and lower green finance development.