Can government environmental protection subsidies to customer enterprises promote green technology innovation among suppliers?

The vertical relationship between upstream and downstream enterprises in a production network is becoming increasingly prominent. Therefore, investigating whether and how government environmental protection subsidies (GEPS) to enterprises influences the decision-making of other enterprises in the supply chain. Using data from A-share listed companies on the Shanghai and Shenzhen Stock Exchanges from 2008 to 2021, we construct a supply chain sample dataset comprising 2759 samples to examine multidimensional supplier–customer–year relationships. The findings reveal that the GEPS to customer enterprises can considerably boost suppliers’ green technology innovation (GTI). The conclusions remain valid after a range of robustness tests. Mechanism analysis demonstrates that the GEPS to customers promote suppliers’ GTI through green demand-driven, financing constraint-alleviating, and innovation spillover effects. Heterogeneity analysis reveals that the ramifications of GEPS to customers on suppliers’ GTI differ significantly because of variations in customer characteristics. The research conclusions provide valuable empirical evidence on how GEPS can advance the green transformation of an entire supply chain through supply chain transmission.