Green credit policy, corporate social responsibility and green innovation

Zhang, Zhi Article Green credit policy, corporate social responsibility and green innovation Journal of Business Economics and Management (JBEM) Provided in Cooperation with: Vilnius Gediminas Technical University (VILNIUS TECH) Suggested Citation: Zhang, Zhi (2024) : Green credit policy, corporate social responsibility and green innovation, Journal of Business Economics and Management (JBEM), ISSN 2029-4433, Vilnius Gediminas Technical University, Vilnius, Vol. 25, Iss. 3, pp. 531-552, https://doi.org/10.3846/jbem.2024.21563 This Version is available at: https://hdl.handle.net/10419/317692 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/ licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Copyright © 2024 The Author(s). Published by Vilnius Gediminas Technical University ISSN 1611-1699 / eISSN 2029-4433 2024 Volume 25 Issue 3 Pages 531–552 https://doi.org/10.3846/jbem.2024.21563 GREEN CREDIT POLICY, CORPORATE SOCIAL RESPONSIBILITY AND GREEN INNOVATION Zhi ZHANG Department of Auditing, Fuzhou University of International Studies and Trade, Fuzhou, China Article History: Abstract. Human activities have an increasingly serious impact on our natural surroundings. Hence, cutting-edge sustainable technologies are essential for both governmental agencies and the corporate sector as a pivotal means to safeguard the environment. This study aims to shed light on the function that corporate social responsibility (CSR) plays in enterprises by examining the relationship between green credit policy (GCP) and green innovation (GI). This research examines a total of 5,819 panels of Chinese listed businesses’ data spanning from 2009 to 2021. The differences-in-differences (DID) model was used to assess hypotheses. The empirical results suggest that GCP has facilitated the adoption of GI by firms. GI in heavily polluting firms was elevated by 15% relative to the control group. The presence of CSR serves as a mediating and moderating factor in the relationship between GCP and the implementation of GI initiatives within firms. Lastly, based on the empirical results, relevant suggestions for optimizing GCP are proposed to achieve better environmental protection results. ■ received 06 September 2023 ■ accepted 27 March 2024 Keywords: Keywords: green credit policy, corporate social responsibility, green innovation, differences-in-differences method, moderating effects, mediating effects. JEL Classification: O31, O38, M38. Corresponding author. E-mail: [email protected] JOURNAL of BUSINESS ECONOMICS & MANAGEMENT 1. Introduction Environmental issues have always been an aspect of great concern to mankind in the process of development. Global warming has become more severe in recent years. The urgency of environmental protection has garnered global acceptance (Bai & Rub, 2024; Zhang et al., 2020a). The issuance of the Green Credit Guidelines by the China Bank Regulatory Commission (CBRC) in 2012 established the framework for China’s GCP system. This initiative provided a solid platform for the development of green credit by all banks and financial institutions in China. The green credit guidelines apply to relevant financial institutions in China, such as commercial banks. GCP mainly includes the following three aspects: First, promoting credit funds to key areas such as the green economy, circular economy, and ecological economy and promoting the development of green industries. Second, strengthen environmental risk management and identify potential environmental risks for enterprises involved in credit disbursement. Finally, strengthen requirements for organizational management, information disclosure, and supervision (Du & Ullah, 2024; Zhang et al., 2021). The primary objective of the policy is to facilitate the advancement of green credit, enhance financial backing for en- 532 Z. Zhang. Green credit policy, corporate social responsibility and green innovation vironmentally friendly, low-carbon, and circular economic activities, mitigate environmental risks, optimize the credit composition, and foster the transition of China’s growth paradigm (Fang et al., 2024; Wang et al., 2022). The execution of the green credit program has spanned almost a decade, warranting careful consideration and examination of its distinct impacts. An analysis of the several factors that affect the efficiency of GCP implementation and its consequences for companies might provide significant knowledge for the formulation and implementation of future environmental protection laws. The existing body of research does not exhibit a consensus about the efficacy of green credit programs’ implementation. The existing body of literature extensively examines the favorable impacts associated with green financing schemes. Green credit policies incentivize companies to develop low-carbon technologies and environmental protection technologies by imposing restrictions on loans provided to highly polluting companies (Liu et al., 2024; Chen et al., 2022; Liuyong & Zeye, 2022; Qin & Cao, 2022; Su et al., 2022; Sun et al., 2019; A. Zhang et al., 2022; K. Zhang et al., 2021). Nevertheless, it is worth noting that several academics contend that the economic and environmental consequences of GCP remain unknown (Wen et al., 2021; Wu et al., 2022). Wen et al. (2021) pointed out that GCP severely inhibits firms’ external financing, leading to a decline in total factor productivity as firms suffer in research and development (R&D) investment and upgrading (Wen et al., 2021). Due to restrictions on the size and sources of financing, GCP can lead companies to adopt greenwashing, or GI, in order to obtain funding (He et al., 2022). From the existing research on GCP, most studies focus on the external environment of enterprises as the starting point, studying the impact of environmental policies on enterprise innovation. However, few researchers integrate the internal factors of enterprises from an internal perspective and examine the policy effects under the comprehensive influence of internal and external factors. Hence, this work seeks to fill this research gap by conducting a complete analysis of firms’ GI behavior, considering both their external legislative environment and internal CSR. The research used the DID model technique to assess hypotheses. DID is able to determine the extent of an event’s or policy’s influence. The fundamental idea behind the approach is to divide the sample into two distinct groups: the treatment group, which is subject to the policy, and the control group, which is not. Using the data on the treatment and control groups before and after the policy was implemented, it is feasible to determine the magnitude of change in an indicator for both the treatment group and the control group. This allows for a comparison of the changes in the same indicator before and after the policy was implemented. The difference between the two changes is then calculated (the so-called “double difference”). The DID methodology is suitable for the assessment of the policy effects of GCP, and some studies have previously used the DID methodology to conduct related research (Li et al., 2024; Peng et al., 2022; Hu et al., 2021; Zhang et al., 2022; Qin and Cao, 2022; Chen et al., 2022). This study makes significant contributions in the following areas: The objective of this study is to analyze the influence of GCP on the decision-making of firms regarding their GI. Initially, we quantitatively analyze the influence of GCP on the level of GI exhibited by firms. Next, we examine the mediating and moderating effects of CSR on GCP that impact GI. Furthermore, we examine the dynamic effects of GCP on the GI of firms and find out the timeliness of GCP’s impact on GI. Based on the empirical findings, we provide solutions to enhance companies’ GI in relation to both external institutions and internal CSR. The succeeding portions of this work are organized in the following way: Section 2 of this research paper comprises a comprehensive literature evaluation and the subsequent creation Journal of Business Economics and Management, 2024, 25(3), 531–552 533 of hypotheses. The third section of the document provides a comprehensive overview of the study methodology, data sources, and the precise definitions of variables. The findings derived from the study are provided in Section 4. The robustness tests are covered in Section 5 of the research. Section 6 of the text pertains to the discussion of the findings. Section 7 of the paper serves as the conclusion and the policy implications that stem from the results. 2. Literature review and hypothesis development 2.1. GCP and GI The Porter hypothesis is a well-established theoretical framework employed in the examination of the link between environmental legislation and industrial innovation. The Porter hypothesis posits that in response to governmental pressures or environmental regulations, firms are inclined to augment their R&D expenditure on pollution control technology and energy-saving technology, resulting in short-term cost escalation. Over time, the combination of technological advancements, improvements in productivity, and enhanced market competitiveness has the potential to generate supplementary returns that surpass the initial investment in R&D. In summary, the hypothesis put forth by Porter posits that the implementation of environmental laws yields advantageous results by fostering inventiveness (Porter & Van der Linde, 1995; Wang et al., 2024). However, whether the Porter hypothesis can be tested or not is highly dependent on the internal and external characteristics of the firm, such as the degree of market competition the company faces and the company’s strategy (Shao et al., 2020; W. Zhang et al., 2024). One view is that GCP policies do promote GI by firms. With strict social supervision and the improvement of the government’s environmental laws, companies tend to choose to conduct green technology research and development to avoid environmental pollution and penalties from the government. By actively carrying out green technology innovation, enterprises can not only avoid government penalties but also obtain more sources of financing (Sinha et al., 2021). Moreover, Sinha et al. (2021) constructed a quantile model to study the relationship between the Green Bond Index (GRBI) and the Environmental and Social Responsibility Index (ESRI). They found that at a low level of GRBI and ESRI, the GRBI has a positive impact on the ESRI. However, the impact of GRBI on ESRI is decreasing as both indices rise. They argued that in the absence of policy-level directives to determine sustainability through business operations, companies may use GRBI primarily as a means to save on taxes rather than envisioning it as a tool to generate socio-ecological outcomes. The concept of GCP entails a shift in the financial system’s lending practices, wherein projects and enterprises characterized by excessive air pollution and consumption of energy are no longer eligible for loans. Conversely, projects that align with environmentally friendly or green initiatives are more likely to secure funding from both governmental and financial establishments (Peng et al., 2022). Peng et al. (2022) conducted empirical tests by constructing a DID model with a selection of Chinese firms that were listed from 2006 to 2018. They discovered that GCP significantly reduces the debt financing of heavy polluting enterprises (HPEs). However, HPEs see very little impact on their short-term debt financing as a result of GCP. Meanwhile, the decrease in company performance resulted in a financial penalty. GCP incentivizes HPEs to enhance their R&D investment and technical innovation as a means to mitigate the penalty impact. Commercial banks have a greater inclination to provide loans to innovative green projects and companies under the GCP guidelines. From the firm’s perspective, GCP implements an external stimulus, similar to an incentive mechanism, and in order to get more 534 Z. Zhang. Green credit policy, corporate social responsibility and green innovation funds, firms have to cater to the government and commercial banks to get more scale of funds (Zhang et al., 2020b). In a study by Zhang et al. (2020b), the researchers looked at the relationship between GI and financing constraints in Chinese non-financial private enterprises listed on the Shanghai and Shenzhen Stock Exchanges from 2012 to 2017. They utilized OLS regression modeling and discovered that GI has the potential to mitigate corporate financing constraints. The regression analysis findings of the study demonstrated that GI, including both green technological innovation and green management innovation, effectively mitigated corporate funding restrictions. From a cost-benefit perspective, companies weigh the payoffs and rewards and then act. GI is a long and risky process, and in the short term, the costs exceed the benefits. Long-term, however, the pressure on businesses from the environment is constant or even rising. Without GI, companies will face high expenses such as environmental taxes, environmental protection expenses, and sewage charges in the long run, so it is a wiser decision for them to choose GI (Hu et al., 2021). Hu et al. (2021) used a DID model to analyze the influence of GCP on the GI of HPEs and explore the policy’s consequences. The findings indicated that GCP has a favorable and constructive influence on the green patent production of HPEs. In the context of tighter external financial constraints, GCP produces a greater impact. Therefore, the findings indicated that GCP has the ability to promote environmentally friendly innovation in HPEs by implementing restrictions on financing, thereby facilitating the transition towards sustainability. China’s GCP can be seen as an environmental regulation policy because it requires firms to contribute to environmental improvement in order to obtain bank loans. Su et al. (2022) acknowledged that GCP has the capability to mitigate environmental damage by diminishing airborne contaminants. In the long run, GCP will have a more favorable impact on the environment as the green credit system is improved (Su et al., 2022). Su et al. (2022) used Granger causality, parametric stability tests, and quantile-to-quantile test to examine the association between GCP and air quality from 2003 to 2019. The enhancement of the green credit system has a substantial beneficial effect on air pollution. This study added additional evidence that GCP affects air pollution. Zhang et al. (2022) conducted a study using green credit guidelines as a quasi-natural experiment to investigate the effect of GCP on the carbon emission intensity of HPEs. By using panel data and employing a DID model, the study reveals that the adoption of GCP primarily leads to a reduction in carbon emissions via two primary mechanisms. Qin and Cao (2022) examined whether the implementation of GCP promotes a low-carbon economy. By constructing a DID model, this research determines that the implementation of green financing policies has a significant impact on reducing pollution in businesses. Based on the aforementioned study, we put forth the subsequent hypothesis: Hypothesis 1: GCP drives GI in enterprises. An alternative perspective says that GCP fails to foster corporate GI. In response, companies may embrace environmentally-friendly cleaning practices as a means to circumvent regulatory regulations pertaining to the environment. From the standpoint of the influence of GCP on corporate resources, it can be inferred that GCP implementation will result in a rise in the financial requirements for businesses. Consequently, firms may face constraints in accessing cash within a limited timeframe. Enterprises have a lack of financial resources to undertake GI initiatives due to limited financing channels. Within the GCP, commercial banks extend loans by evaluating the extent to which the revealed information provided by the company aligns with the stipulated GCP criteria. To mitigate the adverse consequences Journal of Business Economics and Management, 2024, 25(3), 531–552 535 of a capital deficit, firms may resort to greenwashing tactics within the realm of information disclosure. This strategic approach aims to perplex commercial banks, facilitating the acquisition of credit funds (Dagestani et al., 2024; Kim & Lyon, 2015). Thus, we put forth the subsequent hypothesis: Hypothesis 2: GCP promotes companies to adopt greenwashing. 2.2. Role of CSR in GCP and GI CSR is a topic with a long history, and researchers have been studying it for close to 100 years (Berle, 1931; Dodd, 1932; Frederick, 1960). This paper adopts Aguinis’ definition of CSR (Aguinis, 2011), which has also been widely accepted by other scholars (E. Rupp, 2011; Williams & Aguilera, 2008): “context-specific organizational actions and policies that take into account stakeholders’ expectations and the triple bottom line of economic, social, and environmental performance.” As research on CSR deepened, scholars began to conduct research on CSR in terms of specific real-world issues (Belay et al., 2024; Peloza & Shang, 2011). In terms of CSR in the innovation of enterprises, most of the literature concludes that there is a strong link between CSR and corporate GI and that CSR leads to significant improvements in GI (Hao & He, 2022; Forcadell et al., 2021; Mbanyele et al., 2022; Xue et al., 2022; Yuan & Cao, 2022). Empirical studies have found that CSR drives the construction of firms’ technological resources, thereby increasing firms’ technological efforts, or R&D, and outcomes in product and process innovation. Forcadell et al. (2021) conducted empirical research to examine the connection between CSR and the ability of small and medium-sized enterprises (SMEs) to innovate. They gathered data from a panel of 2,405 SMEs in Spain over a span of eight years. The research discovered that CSR promotes the construction of technological resources in firms. CSR strengthens innovation in firms and promotes innovation in previously non-innovative firms, with effects that persist over time (Forcadell et al., 2021). In further studies, researchers confirm that CSR ultimately improves the market competitiveness of companies by promoting GI and acquiring new core technologies (Padilla-Lozano & Collazzo, 2022). The relationship between CSR and GI becomes even stronger, especially when the government requires businesses to publish CSR-related data. In response, companies seek to embrace strategies that promote GI in order to bolster their CSR credentials (Mbanyele et al., 2022). The GCP has compelled national credit departments to integrate environmental issues into the structure of corporate credit allocation and to provide greater credit resources towards green initiatives. Nevertheless, the presence of information asymmetry in the capital market makes it challenging to accurately assess the environmental performance of enterprises. Consequently, enterprises must employ their own environmentally responsible actions as a means to signal their creditworthiness to financial institutions. Undertaking social responsibility and transmitting green signals to the credit department are considered the most crucial methods in this regard (Liao et al., 2024; Oikonomou et al., 2014). To put it another way, low CSR is a penalty, such as higher financial costs, while high CSR is a reward, such as a good reputation and low capital costs. Therefore, drawing from the aforementioned study, we put up the subsequent hypothesis: Hypothesis 3: CSR plays a mediating role in the connection between GCP and GI. Hypothesis 4: CSR plays a moderating role in the link between GCP and GI. The above literature review shows that in the past, the influence of corporate GI or greenwashing was generally examined in terms of some aspect of the internal or external factors 536 Z. Zhang. Green credit policy, corporate social responsibility and green innovation of the firm. Based on the past literature, we have constructed a research framework that integrates internal and external influencing factors, as depicted in Figure 1. Figure 1. Theoretical hypothesis diagram GCP is a financial policy based on environmental protection that supports national or regional environmental protection undertakings from the perspective of finance. GCP mainly works by influencing enterprises’ decisions related to environmental matters. Capital is the most significant factor that affects enterprises under the GCP. In order to obtain loans from banks, enterprises are bound to cater to the GCP as much as possible. In order to comply with the GCP, there are two main choices for enterprises: one is to carry out GI activities in accordance with the government’s requirements in a truthful manner, and the other is to adopt a greenwashing policy, which does not carry out GI but rather decorates the company’s data to be in line with the GCP by means of information asymmetry. These two policy choices are closely linked to the CSR of the enterprise. The CSR enables enterprises to make decisions that are more in line with the harmonious development of human beings and the environment, rather than using information asymmetry to seek bank loans. CSR encourages companies to make decisions that are more in line with the harmonious development of human beings and the environment, rather than taking advantage of information asymmetry in order to obtain bank loans. 3. Methodology, data, and variable definition 3.1. Methodology The DID method is employed in this study to assess the influence of GCP on enterprises’ GI. The DID methodology is suitable for the assessment of policy effects of GCP, and some studies have previously used the DID methodology to conduct GCP-related research (Li et al., 2024; Peng et al., 2022; Hu et al., 2021; A. Zhang et al., 2022; Qin & Cao, 2022; Chen et al., 2022). This research examines a total of 5,819 panels of Chinese listed businesses’ data spanning from 2009 to 2021. Listed companies on the Shanghai Stock Exchange and Shenzhen Stock Exchange are used as research samples. We divide the sample firms into two groups, HPEs is the treatment group and the other is the control group, and try to analyze the policy effects of GCP using the DID model. The utilization of the propensity score matching (PSM) technique, as introduced by Rosenbaum and Rubin (1983), is employed to match samples in order to mitigate the presence of selective sample bias. This approach ultimately enhances Journal of Business Economics and Management, 2024, 25(3), 531–552 537 the dependability of the regression outcomes derived from the DID model. In the process of constructing the empirical model, we set up two types of dummy variables: (1) treatment groups and control groups. Listed companies in heavily polluting industries take 1, others take 0, and (2) time virtual variable. The years 2012 and later are taken as 1, and the years before 2012 are taken as 0. We followed the literature (e.g., Gao & Wang 2021; Xing et al., 2019) to measure enterprises’ GI by the number of green invention patents, and we constructed Model 1 to estimate the impact of GCP on enterprises’ GI and greenwashing. We used model 2 to test the moderating impact of CSR, and models 3 and 4 to test the mediating impact of CSR. ( ) = β +β × + +ξ +λ +ε 01  ;inn     it it i t it i t it G or Greenwashing Treat Post Control (1) ( ) =β +β × +β +β × × + +ξ +λ +ε 01 2 3    ; it it i t it i t it it i t it Ginn or Greenwashing Treat Post CSR Treat Post CSR Control (2) = β +β × + +ξ +λ +ε 01  ;  it i t it i t it CSR Treat Post Control (3) =β +β × +β + +ξ +λ +ε 01 2   . it i t it it i t it Ginn Treat Post CSR Control , (4) where it Ginn is the degree of GI, it Greenwashing is the degree of greenwashing, i Treat is the treatment group dummy, t Post is the time dummy, and it Control are the control variables as shown in Table 1. We further consider firm fixed effects and year fixed effects, and winsorize continuous variables at the 1st and 99th percentiles. In model 3, it CSR is the degree of CSR. 3.2. Variable definition The dependent variable is the firm’s GI, or greenwashing. We quantified the GI of firms by evaluating their use of GI patents .( ) it Ginn Greenwashing refers to a company’s attempt to confuse or exaggerate its performance in environmental protection by making symbolic disclosures in the environmental disclosure process (Kim & Lyon, 2015; Walker & Wan, 2012). We refer to He and Gan (2022) to construct evaluation indexes of greenwashing degree based on environmental information disclosure reports of listed companies (He et al., 2022). The specific approach is as follows: a total of 20 disclosure items in the environmental report, with 0 points for no disclosure, 1 point for descriptive disclosure (no specific quantity in the disclosure information), and 2 points for quantitative disclosure (there are specific quantities in the disclosure information). After obtaining the specific scores of listed companies, the degree of greenwashing is calculated by the following formula: = −    1 ;    Number of disclosed items SDS Total number of disclosed items (5) =      ;    . Number of symbolic disclosure items DDS Total number of disclosed items (6) = ×  . it Greenwashing SDS DDS (7) 538 Z. Zhang. Green credit policy, corporate social responsibility and green innovation The aforementioned method utilizes the acronym SDS to represent the selective disclosure score, whereby a higher score signifies a heightened level of selective disclosure exhibited by the organization. The acronym DDS represents the Symbolic Disclosure Score, which serves as a metric for measuring the extent of symbolic disclosure undertaken by a corporation. A higher score on the DDS implies a heightened level of symbolic transparency exhibited by the company. The term “greenwashing” is used to assess the extent of greenwashing, with a higher score indicating a more significant level of greenwashing. The independent variable is the interaction term among the dummy variable of GCP implementation time and the dummy variable of the HPEs. In terms of control variables, following literature (e.g., Gao & Wang, 2021; Xing et al., 2019; He et al., 2022), we exercise control over a range of variables that have the potential to impact the GI of organizations, including return on assets (Roa), liability ratio (Lev), firm size (Lnsize), firm cash flow level (Cash), firm growth (Gro), equity concentration (H1), and proportion of independent directors (Inde). Table 1. Variable names and definitions Variable type Variable name Variable symbol Variable description Dependent variables Degree of GI Ginn The natural logarithm of the number of green invention patents applied for plus one. Degree of greenwashing Green washing It is calculated by the formula (3)–(5). Independent variable The interaction term between HPEs and GCP time. Treat×Post Treat is a dummy variable for HPEs. When the industry where the enterprise is located is a heavily polluting industry, take 1, otherwise take 0. Post is a dummy variable for the implementation time of GCP, take 1 in 2012 and after, otherwise take 0. Control variables Profitability Roa Net profit divided by total assets Debt level Lev Total liabilities divided by total assets Enterprise size Lnsize Natural logarithm of total assets Cash flow Cash Net cash flow from operating activities divided by total operating revenue Growth Gro Operating income growth rate. Concentration of shareholding H1 Shareholding ratio of the largest shareholder Percentage of independent directors Inde Number of independent directors divided by total number of board of directors In the empirical model later, we study Ginn and Greenwashing as dependent variables, respectively, to clarify how GCP affects the two and to dig out the role played by CSR in it. 3.3. Data We choose all publicly traded firms in China as our sample. Because, in order to observe the effect of GCP on respondents’ GI, we need to analyze the difference between respondents’ GI before and after the implementation of GCP. However, if the comparison is only before and after the GCP, there will be serious errors, because, as time moves, the external environment Journal of Business Economics and Management, 2024, 25(3), 531–552 545 =β +β × +β + +ξ +λ +ε 01 2 _    . it i t it it i t it Substantive inn Treat Post Subsidies Control (11) The findings from analyzing the fundamental channels are shown in Table 7. The variables of interest in column (1) are the innovation subsidies provided to enterprises by the government. The regression findings in column (1) indicate that the regression coefficients of Treat×Post are considerably positive, suggesting a considerable rise in government innovation subsidies to the HPEs. Ginn are the dependent variables in column (2). The regression analysis in columns (2) reveals that the regression coefficients for subsidies exhibit a statistically significant positive relationship, suggesting that government subsidies serve as a crucial mechanism for the promotion of GI by HPEs. Table 7. Verifying the underlying channel Subsidies Ginn (1) (2) Treat×Post 1.638*** (0.007) 0.197*** (0.001) Subsidies 0.004* (0.089) Control variables Yes Yes Constant 1.682 (0.767) -14.8699*** (0.000) Year FE Yes Yes Firm FE Yes Yes Note: ***, **, * indicate significant at 1%, 5%, 10% confidence level, and P values in parentheses. In recent years, the Chinese government has been paying more and more attention to environmental issues and has continued to give subsidies to companies in order to promote innovation and change their previous heavy reliance on resources and negative impact on the environment. Through the analysis of the underlying channel above, we can make it clear that an important reason why Chinese firms do not choose greenwashing behavior under the GCP is that the government is continuously giving subsidies to firms for GI, thus promoting firms to ultimately choose GI. 5. Robustness tests 5.1. PSM-DID test This research used the PSM method and the DID approach to evaluate the impact of GCP on GI, with the aim of improving the credibility of the results. Figure 4 demonstrates that the disparities in variables between the treatment and control groups were significantly mitigated with the implementation of PSM. The figures, specifically Figure 5 and Figure 6, illustrate that the distributions of the treatment and control groups exhibit a high degree of proximity to one another after using the PSM method. The results of the DID analysis following PSM are presented in Table 8. In the first column, the regression coefficient of the interaction term between Treat and Post demonstrates a statistically significant positive effect. This suggests that the implementation of GCP has a major impact on fostering GI in firms. 546 Z. Zhang. Green credit policy, corporate social responsibility and green innovation Figure 4. Variable differences before and after matching Figure 5. Density of the treatment group and control group before matching Figure 6. Density of the treatment group and control group after matching By conducting a rigorous robustness test, we establish that CSR significantly impacts enterprises’ GI within the GCP. Based on the empirical findings, it can be inferred that CSR has a beneficial impact on GCP. It encourages companies to choose GI while discouraging them from engaging in deceptive greenwashing practices. Journal of Business Economics and Management, 2024, 25(3), 531–552 547 5.2. Placebo test In order to better accurately demonstrate the impact of the GCP, we implemented a placebo test. The t-value of the policy impact is determined by randomly picking businesses as the treatment group and cycling them 1,000 times. This information is shown in Figure 7. Figure 7 illustrates that the t-value is mostly centered around 0. However, in the actual scenario, the t-value for the policy impact of GCP is 3.16, indicating that its coefficient is not statistically significant at the 95% confidence level when firms are randomly allocated as the treatment group. Therefore, it demonstrates that the promotion of GI in organizations has a tangible impact in the real world, and this impact is not only by chance. Figure 7. The result of placebo test With the placebo test, we can see that this positive effect produced by GCP is not a coincidence of data but is true in real-life situations. This is because in randomly selected firms, artificially assigning GCP did not yield significant results on GI. Table 8. Regression results of PSM-DID Ginn Greenwashing (1) (2) Treat×Post 0.150*** (0.002) 0.00121 (0.858) CSR 0.00492 (0.211) 0.000313 (0.577) Treat×Post×CSR 0.0543*** (0.000) -0.00134 (0.128) Control Variables Yes Yes Constant –14.61*** (0.000) 0.276*** (0.003) Year FE Yes Yes Firm FE Yes Yes Observations 5819 5819 Note: ***, **, * indicate significant at 1%, 5%, 10% confidence level, and P values in parentheses. 548 Z. Zhang. Green credit policy, corporate social responsibility and green innovation 6. Discussion This research used the PSM-DID approach to investigate the correlation between GCP and GI. In table 8, the regression coefficient for the interaction term between Treat and Post is 0.15. This coefficient has a substantial and beneficial impact on the GI. By using the DID technique, the regression coefficient of Treat×Post incorporates the 15% rise in GI resulting from the influence of the GCP on the treatment group compared to the control group. The regression coefficient of Treat×Post×CSR in the DID model represents the moderating effect of CSR. In Table 8, the regression coefficient of Treat×Post×CSR is 0.0543, which means that the greater the CSR, the greater the effect of GCP on GI. In model 3, the regression coefficient of Treat×Post is 0.601, which means that GCP has a significant positive effect on the CSR of enterprises. In model 4, the regression coefficient of CSR is 0.019, which indicates that CSR has a positive impact on GI. The combined regression results of models 1, 3, and 4 imply that GCP has an indirect effect on GI through CSR. The study’s results provide many significant discoveries. Our research demonstrated that the influence of GCP on enterprises’ GI is limited by CSR. First, the findings suggest that GCP does promote firms’ GI rather than greenwashing. The decisions that companies make in GI and greenwashing are influenced by factors internal and external to the company, and the decisions that companies ultimately choose produce long-term benefits for them (He et al., 2022). Second, our findings also suggest that the Porter hypothesis is applicable in China. The Porter hypothesis suggests that when facing policy pressure or environmental regulation, enterprises will choose to increase their R&D investment in pollution control technology and energy-saving technology (Porter & Van der Linde, 1995). GCP could be perceived as an environmental regulatory policy that requires firms to contribute to environmental improvement in order to obtain bank loans. Enterprises will strategically prioritize GI as a means to mitigate the potential adverse effects of environmental regulatory regulations and prevent substantial limitations on future financing (Chen et al., 2022; Su et al., 2022; Zhang et al., 2022). Third, among the factors external to the enterprise, government subsidies are a key factor in guiding companies to make the right decisions. Companies are forced to adopt greenwashing due to financial pressure as they are unable to actively carry out GI activities through their own strengths as their short-term funding sources are more restricted due to GCP policies. Green technology innovation related to environmental protection has externalities and high risks. The initial investment in GI activities for highly polluting companies far exceeds the benefits they receive. In terms of externalities, GI by enterprises will lead to an increase in overall social benefits (Chenguang & Yong’an, 2014). Therefore, GI cannot be accomplished entirely by market forces, especially after the implementation of GCP. The Chinese government has further compressed the funding sources of highly polluting industries, which inhibits their enthusiasm to carry out GI activities. The effective alignment between GCP and innovation subsidy policy can effectively address the challenges faced by firms. The innovation subsidy policy, being a significant measure implemented by the Chinese government, plays a crucial role in promoting and incentivizing company innovation (Guan et al., 2019). Ultimately, our findings demonstrated a significant correlation between the influence of GCP on corporate GI and CSR. Consistent with the findings of Hao and He (2022). CSR plays a very important role in promoting substantial innovation in enterprises and inhibiting them from adopting greenwashing to obtain funding. CSR, in conjunction with GCP, may significantly enhance GI inside firms. Journal of Business Economics and Management, 2024, 25(3), 531–552 549 7. Conclusions and policy implications We aimed to assess the influence of GCP on the firm’s GI. In summary, we tested the impact of external policies on firms’ innovative behavior and identified the moderating role of firms’ CSR on policy effects. The GI behavior of enterprises is closely related to external systems and internal factors, and to promote the GI of enterprises requires joint efforts from both internal and external aspects of enterprises. The limitation of this study is that our findings apply only to developing countries, and the gradual strengthening of GCP effects over time that we find is closely related to the characteristics of developing countries. Developing countries are generally weaker in terms of technology, finance, and hardware, and the realization of transformation, upgrading, and GI will take a long time to develop and accumulate. In developing countries, government innovation subsidies are an important mechanism for GCP to promote GI in enterprises. GI is an important way to promote sustainable development in developing countries. As global climate change and resource constraints intensify, GI has become a focus of attention for governments and businesses. By promoting GI, developing countries can reduce environmental pollution and resource consumption, improve economic efficiency and competitiveness, and also contribute to global environmental protection. Developing countries have a number of problems and challenges in implementing GI and environmental protection. This research of ours provides new ideas to activate the vitality of GI in developing countries. To promote sustainable development in developing countries and contribute to global environmental protection through the formulation of green policies and the creation of a corporate CSR system. Through the analysis and demonstration of the correlation between GCP and corporate GI, we may formulate significant suggestions. GCP implementation directly affects the funding sources of companies, which can lead to their inability to innovate quickly enough to adopt greenwashing in the short term. As a result, the GCP will be much less effective in the early years and not meet the government’s expectations. Such policies are expected to promote GI by enterprises, reduce their pollution, and thus protect the environment. However, the policies themselves can affect the funding sources for enterprise innovation, so it is recommended that enterprises be given sufficient transition periods before implementing such policies to allow them enough time to prepare in advance so that they can successfully complete the strategic shift when the policies are implemented. When implementing GCP, the government gives companies a transition period of 3–5 years to avoid financial difficulties. In order to achieve the reduction of environmental pollution, we should start from within the enterprise, and we will get better results if we improve the CSR in China. China is still a developing country. Thirty years ago, China began to reform and open, transitioning from a planned economy system to a market economy system. For a long time, China emphasized rapid economic development and neglected corporate CSR. As China’s economic level rises, it has begun to improve corporate CSR, which is conducive to the green transformation of the economy and environmental protection. China’s market economy system is not yet mature, and CSR cannot be formed by entrepreneurs themselves. The government plays a leading role in the development of the market economy, and the government should actively guide enterprises to build good CSR. Through the improvement of the supporting system and CSR, enterprises can be prevented from adopting greenwashing as much as possible. With regards to limitations and future research, it is important to note that our study primarily focused on China as a case study. To get a more comprehensive understanding of the impact of GCP on corporate GI, it would be beneficial to validate our findings across other nations. 550 Z. Zhang. Green credit policy, corporate social responsibility and green innovation For future research, the scope of the study could be expanded to include several categories of countries, both developed and developing. The relationship between CSR and GI can be further refined in terms of the institutional and cultural context of the country to contribute to the sustainable development of mankind. Funding Funder: FJ2021B169, Fujian Provincial Federation of Social Sciences, China. URL website: https://www.fjskl.org.cn/. The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript. 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