How do external resources influence a firm's green innovation? A study based on absorptive capacity

Green innovation is crucial for sustainable economic and ecological development, so its triggering factors and influencing channels are worth investigating. The effects of green subsidies and technology spillover as supportive resources have been widely examined but have not reached a consensus, and its underlying mechanisms remain unclear as well. Using a sample of listed manufacturing firms in China, we examined that green subsidies and technology spillover stimulate green innovation efforts, thereby resulting in more and better green patents. The subsidy effect lasts longer than the spillover effect without discernible delay or decay patterns. The subsidy effect is more significant in traditional firms than tech-intensive ones, while the spillover effect is the opposite. Both effects are more significant in larger than smaller firms. Moreover, firms’ absorptive capacity strengthens both effects in improving outcomes. We reveal the pathways and boundary conditions by which external resources affect green innovation, guiding different types of firms to use various resources more wisely. Finally, we propose suggestions for policymakers to design subsidy strategies better and promote spillover effects.