Equity and Debt Financing Dependence, Green Innovation, and the Moderating Role of Financial Reporting Quality: Evidence from Chinese Firms

Green innovation is essential for the sustainable transformation of enterprises. This study investigates how equity and debt financing dependence influence green innovation using panel data from manufacturing firms listed in Shanghai and Shenzhen between 2012 and 2022. We construct dynamic indicators of equity and debt financing dependence based on firms’ external financing relative to internal capital and assess their effects using panel regressions. Both financing types significantly enhance green innovation. Equity financing dependence increases green patent applications and green invention patent applications by approximately 1.4%, while debt financing dependence leads to gains of 0.9% and 1.1%, respectively. Financial reporting quality positively moderates these effects, with a stronger influence on debt financing dependence. High-quality reporting amplifies the impact of debt financing dependence by about 27% for green patent applications and 22% for green invention patent applications, while its effect on equity financing dependence is limited. Heterogeneity analysis reveals that equity financing dependence is most effective in small and young firms, while debt financing dependence has the strongest impact in medium-sized firms, particularly on green patent applications. The findings highlight the long-term influence of financing behavior on green innovation and inform green finance policy.