Can green finance credit allocation enable green innovation quality improvement -- Evidence from China's manufacturing firms

Abstract

The allocation of green financial credit plays a crucial role in establishing a market-oriented green innovation system. This study sets up a quasi-natural experiment using the Green Credit Policy (GCP) to examine the impact of green financial credit allocation on the quality of enterprise green innovation, with a focus on promoting high-quality development. The findings demonstrate that the GCP has the potential to improve the quality of green innovation in industries restricted by green credit, compared to non-green credit-restricted ones. This conclusion remains consistent after conducting thorough trend analysis and robustness tests. As China speeds up its industrial digital transformation, the fundamental drive of green credit to enable enterprises towards green innovation is also evolving. The analysis of the impact mechanism reveals that green financial credit allocation can elevate the digitization level and total factor productivity of green credit-restricted industries, leading to a higher quality of green innovation by curbing corporate shadow banking. Furthermore, additional research shows that fintech and financial regulation can strengthen the positive influence of GCP on the quality of green innovation. Moreover, regional intellectual property protection has a beneficial synergistic effect in combination with GCP. This study confirms that green credit is an effective strategy for optimizing the allocation of green financial resources and enhancing the quality of green innovation, with amplified positive effects achievable through financial technology and financial regulation.