Artificial intelligence, digital finance, and green innovation

Abstract

The high risks and uncertainties inherent in green innovation present challenges for traditional financial tools. Against this backdrop, AI has the potential to enhance both corporate green innovation efforts and financial efficiency by leveraging its strengths in data analysis and risk prediction. Nevertheless, the specific impacts and underlying mechanisms of AI's influence remain insufficiently explored. This study employs a two-way fixed-effects model to analyze data from 688 Chinese A-share companies from 2011 to 2020 to explore how AI influences corporate green innovation mechanisms. Our findings reveal that AI drives green innovation, mainly by enhancing digital finance. Moreover, we investigate AI's facilitating effects on green innovation across four dimensions: digital finance coverage, corporate cash flow, corporate growth, and regional environmental quality. The results indicate that AI contributes significantly to green innovation, especially within regions characterized by advanced digital finance, firms with abundant free cash flow, high-growth companies, and areas with lower environmental quality. These findings provide useful guidance for businesses and policymakers seeking to harness AI and digital finance to effectively drive green innovation.