Does incentive-based green governance compensate for green innovation in enterprises? The role of green orientation

Government-led green governance, as a crucial tool for achieving green and sustainable development, has garnered significant attention among researchers worldwide. Nevertheless, research on incentive-based green governance and green orientation remains insufficient. This study adopts an evolutionary game theory framework to elucidate the mechanisms underlying incentive-based green governance and green orientation in facilitating green innovation. The effectiveness of this framework is then verified through the utilization of propensity score matching (PSM) and difference-in-differences (DID) methods using data from Chinese companies. The main findings include the following: (1) Government incentive-based green governance exhibits a compensatory effect on green innovation, which is validated through robustness testing. (2) Internal green orientation serves as an intermediary factor between incentive-based green governance and green innovation, while external green orientation exerts a positive regulatory effect. (3) Heterogeneity analysis demonstrates that the impact of incentive-based green governance on green innovation is more pronounced in non-high-pollution industries, high-tech corporations, and companies operating in areas with lower governance intensity. This study is conducive to illustrate the compensatory effect of government incentive-based green governance on green innovation and also provides reference for the government to issue targeted green governance policies.