Government Subsidies and Green Innovation in Renewable Energy Enterprises: The Moderating Role of Financing Constraints

Renewable energy enterprises are central to the low-carbon transition, yet their green innovation is constrained by high technological uncertainty, long payback periods, and limited access to external finance. Government subsidies are among the most widely used policy instruments for correcting the resulting under-investment, but whether they actually stimulate green innovation, and under what financial conditions they work best, remains unclear. Drawing on market-failure theory, information-asymmetry theory, and signaling theory, this study examines the effect of government subsidies on green innovation in Chinese renewable energy listed companies and tests the moderating role of financing constraints. Using an unbalanced panel of 186 A-share listed renewable energy firms observed from 2012 to 2023 (1,794 firm-year observations), two-way fixed effects estimates show that government subsidies significantly promote green innovation, and the result is robust to alternative measures, instrumental-variable estimation, and Poisson pseudo-maximum likelihood estimation. Financing constraints positively moderate this relationship: the marginal effect of subsidies is larger for firms facing tighter constraints, consistent with the view that subsidies compensate for scarce external funds and send positive signals to creditors. The promoting effect is also stronger in non-state-owned enterprises, small and medium-sized enterprises, and firms located in central and western China. These findings enrich the literature on the financial conditions under which industrial policy is effective and offer practical implications for designing targeted and differentiated subsidy schemes that support the green transformation of the renewable energy sector.