Green Finance Policy and Firm Productivity in the Green Transition: Evidence from China’s Pilot Zones

Green finance has become an important policy instrument for promoting sustainable development, but its effects on firm productivity may vary across firms with different environmental attributes. This study develops a theoretical framework in which green finance incorporates environmental performance into credit allocation and capital pricing, thereby reshaping firms’ financing conditions, innovation incentives, and resource allocation efficiency. The framework suggests that green finance may create productivity-enhancing incentives for green firms while imposing transition-related pressures on heavily polluting firms. Using data on Chinese A-share listed firms from 2009 to 2024, this study exploits China’s Green Finance Reform and Innovation Pilot Zones policy as a quasi-natural experiment and combines a triple-difference (DDD) model with a Double Machine Learning (DDML) framework to identify the policy’s productivity effects. The results show that the policy significantly increases the total factor productivity of green firms but reduces that of heavily polluting firms. Mechanism analysis indicates that the policy reduces both green technological innovation and capital allocation efficiency among heavily polluting firms. For green firms, the policy promotes green technological innovation but reduces capital allocation efficiency. Heterogeneity analysis shows that these effects vary with government subsidies, organizational slack, and industry asset intensity. Further analysis suggests that digital transformation may mitigate the policy’s adverse productivity effect on heavily polluting firms, while the policy improves governance among green firms by reducing earnings management and controlling-shareholder expropriation. These findings suggest that green finance policy should balance environmental constraints with support for firms’ green transition, adopt differentiated policy designs, and strengthen governance mechanisms to promote sustainable productivity growth and an inclusive green transition.