“…Some studies have indicated that green subsidies have a positive impact on firms' green process innovation practices (Horbach, ; Liao, ), whereas others have suggested that green subsidies result in disadvantages coming from overexpansion and overinvestment (Feng & Liao, ). Following the knowledge‐based view (KBV), absorptive capacity might be a significant factor that influences firms' green innovation (Engelen, Kube, Schmidt, & Flatten, ; Flor, Cooper, & Oltra, ; Galbreath, ; Liao, Chen, Hu, Chung, & Yang, ). Additionally, as Arfi, Hikkerova, and Sahut () indicate, a firm's absorptive capacity of transforming external knowledge into internal skills is indispensable to successful green innovation.…”