Seeing Green Through Rose‐Colored Glasses? Corporate Biodiversity Cognition Bias and Green Innovation Bubbles

ABSTRACT Despite the growing global focus on biodiversity loss, the way firms cognitively approach biodiversity remains inadequately explored. We examine the effect of corporate biodiversity cognition bias on green innovation bubbles. Cognitive bias is operationalized as the difference between firms' self‐reported biodiversity‐related information and the objective biodiversity risks they are exposed to. The discrepancy between green patent applications and the number of patents granted serves as a proxy of green innovation bubbles. By analyzing a dataset of 47,521 firm‐year observations from Chinese A‐share listed firms, we find that biodiversity cognition bias significantly exacerbates green innovation bubbles. We further identify increased ESG rating divergence and reduced investment efficiency as key mediating channels. Moreover, higher executive green cognition and greater green investor ownership may counterbalance the negative impact of cognitive bias on green innovation bubbles. Our results provide deeper insights into how internal biases and external factors jointly shape corporate responses to biodiversity risks.