This study assesses the impact of China’s Green Credit Guidelines (GCG) 2012 on the quality of firms’ green innovation and their financial asset allocations. While examining patent applications and grants, our findings reveal that, although the GCG 2012 led to a significant increase in green patent applications, its influence on granted patents, especially in the invention category, was minimal. This highlights a discrepancy between innovation intent and quality, suggesting that highpolluting enterprises (HPEs) prioritize rapid policy compliance rather than substantial environmental improvements. However, HPEs seem to prioritize liquidity over long-term financialization, potentially indicating enhanced credit allocation efficiency.

This study examines factors that determine prefectural industrial policies and their impact on firm total factor productivity (TFP), utilizing a natural language processing algorithm and data from the Report on the Work of the Government in China. We find that compliance with upper-level governments is crucial in shaping prefectural industrial policies. When an industry is favored by the upper-level government, the probability of the prefectural government’s favoring that industry increases. However, prefectural policies driven by political compliance have a minimal positive impact on TFP, due to inadequate implementation of policy measures like tax deductions, preferential loans, and land price discounts.