Equity Pledge and Corporate Green Transformation: Nonlinear Regime Transitions and Threshold Dynamics in a Financial–Environmental System

The transition toward carbon neutrality constitutes a complex adaptive process in which firms must continuously balance long-term environmental objectives against short-term financing constraints. While corporate green transformation is widely recognized as essential for sustainable development, the internal financial mechanisms shaping firms’ environmental strategies remain insufficiently understood. This study explores how controlling shareholders’ (CSs) equity pledge—a prevalent liquidity mechanism in emerging capital markets—generate nonlinear and threshold-dependent effects on corporate green transformation. We develop a constrained optimization model that embeds financing constraints and control-transfer risks into shareholders’ decision-making. The model formalizes a resource–risk trade-off and predicts a nonmonotonic relationship: Equity pledge initially facilitates green investment by easing liquidity constraints, but beyond a critical threshold, escalating control risk induces short-termism and crowds out substantive sustainability efforts. Using a balanced panel of Chinese A-share listed firms from 2014 to 2023, we empirically confirm a robust inverted U-shaped relationship between equity pledge intensity and green transformation. Further mechanism analyses reveal that financing constraints and digital transformation act as key transmission channels through which this nonlinear effect materializes. Heterogeneity tests indicate that the trade-off is most pronounced among non–state-owned firms, high-pollution industries, and firms with weak external governance. Extending the analysis, we show that although green transformation generally enhances firm value, excessive equity pledge undermines this benefit by amplifying governance risks. By integrating formal modeling with large-sample empirical evidence, this study demonstrates that corporate green transformation emerges from a complex interaction between liquidity incentive and risk constraint. The findings highlight equity pledge regulation as a critical leverage point for stabilizing the financial–environmental nexus in the transition toward low-carbon development.