Does Green Innovation Induce a “Financing Penalty” in the Capital Market?—Evidence from Chinese Textile Enterprises

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Abstract
Green innovation is key to achieving the strategic goals of carbon peaking and carbon neutrality. High-carbon enterprises account for a substantial proportion of carbon emissions. Yet, prior literature overlooks the unique features of high-carbon firms in the green transition. We develop an integrated framework for this analysis. Using Chinese A-share listed textile enterprises from 2010 to 2023 as the sample, this study finds that green innovation significantly increases the cost of equity capital of high-carbon enterprises by increasing cash outflows and agency costs. However, greater willingness to innovate and stronger regional green finance development can mitigate these adverse effects. Furthermore, green innovation’s upward effect on the cost of equity capital is statistically significant among enterprises facing tight financing constraints, with weak human capital, receiving limited attention from institutional investors, and operating in regions with significant climate-risk concerns. Further analysis shows that once high-carbon enterprises’ green innovation level exceeds a certain threshold, investors may reduce their required cost of equity capital. By focusing on Chinese textile enterprises, this study provides practical evidence for high-carbon enterprises to pursue green innovation. It offers guidance on broadening access to long-term capital and promoting sustainable development.

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