Navigating green innovation: The role of carbon regulation and green finance in corporate strategy

This paper first distinguishes green innovation into substantive innovation (GI) and strategic innovation (SI). It then employs evolutionary game and panel econometric models to examine firms' green innovation choices under varying intensities of carbon emission regulation, as well as the moderating role of green finance support. The results show that carbon regulation mitigates the insufficient incentive problem for green innovation. However, different levels of regulatory intensity induce firms to adopt distinct green innovation strategies. Using the comprehensive carbon price (TCP) as a proxy for regulation intensity, we identify an inverted U-shaped relationship between TCP and GI. When the TCP is below the critical value of 19.08 yuan/ton, an increase in carbon price effectively promotes GI, whereas beyond this threshold, further increases significantly inhibit GI. In contrast, TCP exhibits a significant positive linear relationship with SI, indicating that for each one-yuan increase in carbon price raises strategic green innovations by approximately 0.76 %. Green finance support alleviates the cost and risk pressures imposed by carbon emission regulation, raising the threshold to 20.56 yuan/ton and playing a significant moderating role. Moreover, heterogeneity analysis reveals that the inverted U-shaped relationship between TCP and GI varies across firms: the threshold shifts rightward for large-scale firms and those facing intense industry competition, but leftward for heavily polluting firms. These findings provide policy implications for optimizing carbon regulation and green finance mechanisms, and for addressing firms' overemphasis on the quantity rather than quality of green innovation.