Supplier green innovation under the equity linkage of supply chain

While green innovation is crucial for driving environmental transformation, its effect on suppliers’ green innovation within the context of equity linkages remains under-explored. This study examines green innovation at the enterprise level through a production decision-making model, focusing on the micro-level effects of equity linkages within supply chains. Using data from Chinese listed companies from 2009 to 2022, we test two competing mechanisms: collusion and collaborative governance. Our findings indicate that equity linkages significantly enhance suppliers’ green innovation. These linkages foster cooperation between suppliers and customers, thereby reducing the costs of green innovation and incentivizing supplier efforts. Conversely, an excessive degree of equity linkage can lead to increased collusion, which hinders green innovation. Furthermore, higher agency costs are found to negatively impact green innovation. The mechanism analysis also reveals that equity linkages promote green innovation by increasing customer stability. This paper contributes to the theoretical framework of supplier green innovation and offers valuable insights for firms seeking to leverage equity linkages for a sustainable competitive advantage in their green innovation performance.