Strategic or substantive green innovation: How do non-green firms respond to green credit policy?

Yi HU, Shuchang JIN, Juan NI, Kai PENG, Lei ZHANG

Research output: Journal PublicationsJournal Article (refereed)peer-review

14 Citations (Scopus)


How does a green credit policy shape non-green firms' green innovation behavior? Previous literature shows that the green credit policy stimulates the quantity of green innovation but is less focused on its quality. Using the enforcement of the Green Credit Guidelines (GCG) in China as a natural experiment, we investigate the influence of the green credit policy on different types of green innovation (i.e., high and low quality). Consistent with the greenwashing hypothesis, we find that non-green firms strategically increase low-quality green innovations but not high-quality ones after the enforcement of the GCG. Additionally, we show that non-green firms are more likely to increase their patenting activities rather than innovation inputs to boost green patents after the enforcement of the GCG. Our study reveals the unintended consequences of the green credit policy and sheds light on non-green firms' strategic green innovation behavior.
Original languageEnglish
Article number106451
JournalEconomic Modelling
Early online date21 Jul 2023
Publication statusPublished - Sept 2023
Externally publishedYes

Bibliographical note

Funding Information:
This study also proposes two competing hypotheses. First, the implementation of the GCG restricts the flow of funds to non-green firms, which increases the cost of debt and decreases the scale and maturity of debt for non-green firms ( Xu and Li, 2020 ). However, innovation activities require substantial financial support, particularly long-term funding ( Fang et al., 2017 ). Therefore, we expect the enforcement of the GCG to increase non-green firms' financial constraints, thus hindering their green innovations (the financial constraints hypothesis). Second, the government intends to raise environmental awareness and inspire non-green firms to make green transformations by implementing GCG. Thus, as intended, we expect that after the enforcement of the GCG, non-green firms will increase green innovations, especially high-quality ones (the inspiring hypothesis).

Publisher Copyright:
© 2023


  • Green credit policy
  • Green innovation
  • Greenwashing

Cite this