Does green innovation pay off in China? Market valuation, investor sentiment, and risk-taking in A-listed firms

Fatima Batool (), Kainat Iftikhar () and Muhammad Nadir Shabbir ()
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Fatima Batool: Central University of Finance and Economics
Kainat Iftikhar: Central University of Finance and Economics
Muhammad Nadir Shabbir: Xi’an University of Finance and Economics

Risk Management, 2025, vol. 27, issue 3, No 4, 35 pages

Abstract: Abstract This study investigates the Impact of green innovation on firm market valuation, focusing specifically on market-based performance metrics within the context of Chinese A-share listed firms from 2012 to 2023. Unlike traditional accounting measures, market valuation offers a forward-looking perspective, reflecting investor expectations, sentiment, and firm-specific risk exposure. Despite being a key driver of sustainable development, the financial viability of green innovation remains uncertain in the current literature. Using a multi-method econometric approach including fixed-effects models, Dynamic Kernel Smoothing Estimation (DKSE), Generalized Method of Moments (GMM), and Propensity Score Matching (PSM), the study finds that green innovation is negatively associated with market valuation in the short term, primarily due to perceived financial Risk and uncertain returns. However, investor sentiment positively moderates this relationship, suggesting that high market optimism reduces the negative valuation impact. Furthermore, market-based risk-taking mediates the effect of green innovation on firm value, highlighting that risk exposure plays a pivotal role in investor evaluations. These findings contribute to the literature by offering new insights into how behavioral finance factors and strategic Risk shape the financial market’s response to corporate sustainability efforts. The study provides valuable implications for managers, investors, and policymakers aiming to align environmental innovation with long-term market performance.

Keywords: Green innovation; Market valuation; Market performance; Investor sentiment; Risk-taking; Sustainable innovation (search for similar items in EconPapers)
JEL-codes: D18 D4 G1 G14 O3 O31 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1057/s41283-025-00166-8

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