Debt Financing Cost and Green Innovation: The Conditioning Role of Financing Dependence Structure in Chinese Manufacturing Firms DOI: https://doi.org/10.33093/ijomfa.2026.7.2.14
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Abstract
Debt-financing costs are generally considered to be restrictive for corporate innovation; however, their role in green innovation may be conditional rather than uniformly negative. Based on a sample of A-share listed companies from 2012 to 2023, this study examines whether this cost is related to green patenting and, more importantly, how this relationship varies with firms’ financing dependence structure. Green innovation can be reflected in the scale of total green patent applications and the depth of green invention applications. Based on the estimates, both indicators are positively correlated with the cost of debt, and the impact is relatively stronger for total applications. Higher debt costs do not necessarily hinder firms’ green transition. However, the moderation analysis indicates that this positive effect is not uniform either. It is weaker when the company uses more equity financing, but this evidence is limited; by contrast, it becomes stronger when firms rely more heavily on debt financing, especially for green invention patent applications. The evidence suggests that debt financing cost is not only a financial burden but may also play a conditional role in firms’ green innovation decisions. The novelty of this study is that it distinguishes between dependence on equity and debt financing and finds that the debt-cost-green innovation relationship differs between the two types of financing dependence. Therefore, the cost of debt financing may act as either a constraint or a form of external pressure, depending on how firms obtain external funds.
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