How does green digitalization affect environmental innovation? The moderating role of institutional forces

Abstract Environmental innovation is essential to achieving environmental and economic sustainability. This study aims to explain whether and under what conditions green digitalization may foster firm environmental innovation. Using a database of Chinese listed firms matched with provincial‐level digitalization information from 2012 to 2018, we find that green digitalization significantly increases environmental innovation, and this effect can be achieved through enhancing R&D investment. In addition, the positive effect of green digitalization on environmental innovation is moderated by formal and informal institutional forces. We establish government support (in the form of financial investment in building digital infrastructure), government intervention, and cyberculture as the theoretically important moderators. Our findings contribute to digitalization research, institutional theory, and the literature on environmental innovation and provide important practical implications for managers and policymakers seeking to improve environmental sustainability through digital transformation.