Utilising data from listed companies in China from 2007 to 2020, we first examine whether and how corporate green innovation affects stock liquidity. We demonstrate that corporate green innovation, especially green invention innovation, significantly increases stock liquidity. This promotion effect is stronger in small enterprises, enterprises in cities with serious air pollution, and enterprises in regions with strict environmental regulations. The mechanism analysis suggests that green innovation reduces information asymmetry and improves the financial performance of enterprises. Finally, we explore what types of investors prefer green innovation, and confirm that corporate green innovation is favoured by green investors.
