Green innovation and firm performance in China: Empirical insights from A-share listed manufacturers

As environmental challenges intensify globally, green innovation has become a strategic imperative for firms seeking to balance ecological responsibility with sustained competitiveness. We examine whether green innovation improves firm performance in China’s manufacturing sector. Using panel data on 1,033 A-share manufacturers (2014–2023; 10,330 firm-years), we estimate two-way fixed-effects models (firm and year fixed effects (FE)) with cluster-robust standard errors (SE). Green innovation is measured by green patent outputs; firm performance is proxied by average return on equity (ROEAVG), with return on invested capital (ROIC) as a robustness outcome. Results show a positive and statistically significant association on average, with stronger effects in more developed regions. Findings remain under lagged-specification checks and alternative outcome measures. Conceptually, we extend the resource-based view by framing green innovation as a capability bundle whose payoff is conditioned by institutional context and absorptive capacity. Practically, predictable enforcement and disclosure raise both the quantity and influence of green patents and improve market pricing of eco-innovation; targeted, adoption-cost-reducing incentives tied to substantive innovation help curb greenwashing.