Financial resilience and sustainability: examining green innovation trends post-stock price crashes in China

The primary objective of this study is to uncover whether the occurrence of stock price crash (SPCR) influences firms' engagement in green innovation (GI) and change in GI activities. Using data for China's A-share listed firms from 2009 to 2022, our initial findings reveal that firms increase their investments in GI after SPCR occurrence and this effect is consistent with a change in GI. The mechanism analysis shows increased financial constraints prompting firms to adopt GI to alleviate the strain on financing, thereby enhancing overall financial stability. Additionally, the impact of SPCR on GI is more prominent in state-owned enterprises and in those with politically connected CEOs. Moreover, heterogeneity analysis shows that firms located in high-tech regions and those with low levels of bank competition tend to invest more in GI activities after the occurrence of SPCR. Overall, the findings are robust and remain valid after using propensity score matching and system generalized method of moments models.