Institutional contexts and the dialectical dynamics of government subsidies: how environmental regulation and market competition shape green innovation outcomes

Although cooperative interactions between governments and firms are widespread, the effects of government subsidies on corporate green innovation performance remain inconclusive. Drawing on institutional theory and principal-agent theory, this study argues that government subsidies influence green innovation through multiple mechanisms, with environmental regulation and managerial environmental concern acting as key moderating forces. Extending prior research, we distinguish firms' green innovation behaviors as either substantive or strategic. Using panel data from 2017 to 2023 covering 682 observations of Chinese aviation firms and their upstream manufacturers, our analysis shows that, in aviation industries, environmental regulation independently promotes both substantive and strategic green innovation, yet weakens the positive effects of government subsidies on both forms. In contrast, managerial environmental concerns strengthen the subsidy–innovation relationship but simultaneously exert a direct negative effect on firms’ overall green innovation performance.