Green innovation and corporate financial performance: Insights from operating risks

Green innovation endeavors are of utmost importance for China's green transformation, and the precondition for corporations to undertake green innovation is whether it can enhance their financial performance. Additionally, corporations must utilize leverage to stabilize funding for green innovation. However, it is uncertain how financial leverage affects the relationship between green innovation and corporate financial performance. This study examines the impact mechanism of green innovation on corporate financial performance, as well as its interaction with leverage ratio, using data from listed companies with green patents in the Shanghai and Shenzhen stock markets spanning the period from 2000 to 2020. Employing a nonlinear panel data model, the findings reveal a U-shaped relationship between green innovation and corporate financial performance. Furthermore, the impact of green strategic innovation and green substantive innovation on corporate financial performance exhibits heterogeneity. The study also highlights the negative impact of the risk accumulation effect resulting from the combination of leverage ratio and green innovation on corporate financial performance. Conversely, the interaction between deleveraging measures and green innovation proves beneficial in promoting corporate financial performance. Therefore, decision-makers in corporations and governments should make rational use of financial leverage when formulating green innovation development strategies.