Double-edged sword of environmental governance: can green government subsidy promote corporate green innovation?

Purpose This study aims to explore whether governments are always effective in incentivizing corporate green transition. Drawing on the government subsidy literature and green innovation literature, this study examines the impact of green government subsidy on a Chinese corporate green innovation, as well as the moderating role of negative performance feedback. Design/methodology/approach A sample of 22,882 Chinese firm-year observations was used from 2008 to 2021 to estimate a panel Poisson regression model. Findings The results show that green government subsidy is not always beneficial to incentivize corporate green innovation, and that there is an inverted U-shaped relationship between green government subsidy and a firm’s green innovation. Moreover, such inverted U-shaped becomes more pronounced when the firm is experiencing underperformance compared to its historical aspirations and social aspirations. Originality/value The findings confirm the nonlinear impact of green government subsidy on corporate green innovation, highlighting both the positive effect and negative effect of green government subsidy on corporate green transition. In addition, the moderating role of negative performance feedback sheds new light on considering the performance feedback factor in the role of government in green innovation.