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Indirect effects of government guidance funds on firm green innovation: Strengths and limitations of financialized industrial policy in China

Author

Listed:
  • Rao, Siqi
  • Dai, Pengyi
  • Zhou, Zheng
  • Yuan, Li

Abstract

As a financialized industrial policy leveraging market mechanisms to realize government objectives, China's government guidance funds (GGFs) have the potential to promote firms' green innovation. Using data of A-share listed firms from 2010 to 2021 and employing the PSM-DID method, this paper verifies this positive green effect in the short term. Mechanism tests show that the industrial policy status helps the GGF address the incentive problem using green-oriented political resources, driving firms to engage in policy-driven green innovation. However, this effect exhibits vulnerability for the GGF's failure to enhance firm efficiency and to attract social capital. In such cases, the positive effect is confined to the short term. This paper reveals the role and limitations of GGF in promoting firm green innovation.

Suggested Citation

  • Rao, Siqi & Dai, Pengyi & Zhou, Zheng & Yuan, Li, 2026. "Indirect effects of government guidance funds on firm green innovation: Strengths and limitations of financialized industrial policy in China," International Review of Economics & Finance, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:reveco:v:106:y:2026:i:c:s1059056025010366
    DOI: 10.1016/j.iref.2025.104873
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    Keywords

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    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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