Does Financialization Alleviate the Funding Dilemma of Green Innovation in Heavily Polluting Firms?: Evidence from China's A-Share Listed Companies

Green innovation in heavily polluting firms is crucial for sustainable development, yet financial constraints remain a major barrier. This study employs a Spatial Durbin Model to analyze how financialization influences green innovation in China's A-share listed firms. The results indicate that financialization intensifies financing constraints, leading to a suppression of green innovation. This effect is primarily driven by the "crowding-out effect", which outweighs the "reservoir effect" that financialization may provide. Additionally, industry-wide peer effects further spread the negative impact, while agency conflicts and managerial incentives exacerbate the problem. Regional disparities are also observed, with stronger negative effects in eastern and central regions and among firms with high managerial compensation. To address these issues, the study recommends strengthening policy guidance, expanding green finance mechanisms, promoting industry collaboration, and improving corporate governance. These findings enhance our understanding of the dual impact of financialization on green innovation and provide actionable policy recommendations for achieving sustainable development in high-pollution industries.