Does fiscal decentralization promote corporate green transition?

As sustainable development increasingly gains global attention, corporate green transformation has become a key pathway toward high-quality economic growth. This study examines whether and how local fiscal autonomy influences firms’ green transformation from an institutional perspective of fiscal decentralization (FD). Using panel data from Chinese prefecture-level cities and nonfinancial listed firms, we construct a text-based index to quantify green transformation and apply a two-way fixed effects model for empirical analysis. The results reveal that FD significantly promotes green transformation, and the findings remain robust following various validity tests. Mechanism analysis reveals that FD indirectly facilitates green transformation by strengthening local environmental regulation and increasing executives’ political connections. Quantile regression analysis indicates significant heterogeneity, with positive effects primarily concentrated among firms with stronger green foundations. This study extends the understanding of FD at the micro level and provides empirical support for better alignment between fiscal reform and sustainability policy.