Green bonds and corporate green transformation: substantive or strategic innovation?

Whether green bond issuance drives genuine corporate green transformation or merely incentivizes symbolic compliance remains a subject of debate. This paper addresses this issue by explicitly distinguishing between substantive and strategic green innovation. Using a multi-period Difference-in-Differences (DID) approach on a panel of Chinese listed firms from 2012 to 2022, we find that green bonds significantly promote both types of innovation. Mechanism tests reveal that these effects are driven by alleviated financing constraints and enhanced governance incentives. The impacts are more pronounced in state-owned enterprises, pollution-intensive sectors, and firms led by executives with environmental experience. Crucially, we find no evidence of systematic greenwashing post-issuance; instead, issuers exhibit improved ESG performance, reduced short-term financial speculation, and increased targeted green capital expenditures. Our findings provide robust evidence for policymakers that green bonds are effective tools for fostering substantive real-economy decarbonization.