Enhancing Corporate Financial Performance Through Green Innovation and Strategic Leverage: The Moderating Role of Government Environmental Policy Support in Pakistan

Abstract

This study investigates the influence of green product innovation, green process innovation, and financial leverage on corporate financial performance (CFP), while assessing the moderating role of government environmental policy support within Pakistan’s environmentally sensitive industries., Utilizing a quantitative research approach, data were collected from n= 350 senior managers operating in the manufacturing, energy, and chemical sectors. , The research aims to examine how eco-innovative practices and financial strategies impact firm profitability and how government policy support amplifies these effects. Structural Equation Modeling (SEM), performed using Smart PLS, revealed statistically significant positive relationships between both green product and process innovations and CFP. Financial leverage also demonstrated a moderate yet significant positive effect on firm performance. Moreover, the moderating effect of government policy support significantly enhanced the relationship between green innovation strategies and financial outcomes, although its effect on financial leverage was less pronounced. These findings contribute to the literature by offering a holistic view of how internal strategic capabilities and external institutional factors interact to drive financial success in sustainable business practices. The study provides practical implications for policymakers, suggesting the importance of structured green incentives, and offers managerial insights into aligning innovation and financial planning to achieve improved financial performance.