Green Innovation and Institutional Resilience in China’s Firms under the COVID-19 Shock

Green innovation is pivotal to China’s “ecological civilization” agenda, yet its role in fostering organizational resilience during systemic shocks remains underexplored. This study examines how directive legitimacy (alignment with state sustainability goals), indigenous cultural values of harmony and long-term orientation, and compositional innovation capabilities interact to shape firm responses in a state-guided economy. Using a balanced panel of 834 Chinese A-share firms (8,340 firm-year observations, 2015–2022) linked to 59,989 quality-adjusted green patents, we apply staggered difference-in-differences models and machine learning methods to capture non-linear effects of provincial lockdowns. Results reveal that pre-pandemic green innovation mitigates COVID-19-related declines in return on assets and Tobin’s Q, particularly in environmentally sensitive industries. The study advances legitimacy and dynamic capabilities theories by conceptualizing directive legitimacy and compositional capabilities as enablers of resilience in state-guided contexts. Practically, the findings inform the design of green industrial policies and highlight the value of integrating traditional cultural principles and green innovation strategies to enhance resilience during exogenous shocks.