The Relationship Between Green Financing and Green Innovation: A Game Theory Approach to Companies' Risk-Taking Behavior

Introduction
Today, the greenness of the economy aligns with people's development in business and infrastructure, holding a special place aimed at protecting the environment while promoting economic growth and investment. In recent years, significant attention has been paid to green financing. Companies opting for green innovation may encounter higher risks due to the elevated costs associated with green technology innovation, including substantial initial investments in green projects and the spillover effects of green innovative products. Risk tolerance emerges as a critical factor in this context. However, the interplay between green financing, green innovation, and risk-taking has been underexplored in existing studies. Green innovation encompasses unique or modified systems, processes, products, and practices that provide environmental benefits and contribute to sustainability. It reflects an organization's capabilities and environmental actions. The dynamic game model serves as a powerful analytical tool to examine the choices of various stakeholders simultaneously. This study adopts a theoretical analysis framework based on two key considerations: first, using evolutionary game theory to explore how green financing influences the choice of innovation modes, explaining why it affects green innovation behavior but not general innovation behavior; second, demonstrating how market equilibrium shifts toward green innovation by accounting for firms' competitive dynamics.
 
Methodology
This study follows three fundamental steps: (1) identifying green components in the banking industry, (2) analyzing the impact of green financing on green innovation through game theory, and (3) examining the role of risk tolerance in green financing and innovation. Using the Delphi method, we identified effective green components within the banking sector through case studies of two Isfahan dairy companies—Pegah Isfahan and Aalist Najaf Abad—that produce homogeneous dairy products. We discuss strategy selection and dynamic evolution in green technology innovation, focusing on evolutionary equilibrium strategies. A game theory model was employed to investigate the relationship between green innovation and green financing, followed by an analysis of how companies' risk-taking behaviors influence these dynamics. Robust standard errors and cluster standard errors were utilized to estimate Tobit and Poisson models, with results presented using MATLAB software.
 
Findings
The proposed game theory model demonstrates that enhanced green financing increases the likelihood of companies initially adopting green innovation modes. Additionally, our findings indicate that the positive impact of green finance on green innovation is stronger for firms with lower risk tolerance levels. Furthermore, the effect is more pronounced when enterprises exhibit reduced risk-taking tendencies. These insights offer valuable guidance for advancing green development. The conclusions remain robust across various estimation methods, explanatory variables, and sensitivity analyses.
 
Discussion and Conclusion
The game theory model presented herein confirms that green financing in the banking industry effectively promotes green innovation. Empirical results from the studied companies corroborate the theoretical analysis. Lower organizational risk-taking amplifies the impact of green finance on green innovation, providing actionable insights for sustainable development. Regarding the financial mechanisms supporting green technology innovation, the following recommendations are proposed:

Governments should regulate subsidies transparently to support green finance development by launching targeted financial subsidy programs and establishing performance evaluation systems.
Pilot policies in green finance zones can foster industrial growth, leveraging market-oriented mechanisms such as national carbon trading markets to incentivize the conversion of green innovation value into economic benefits.
To engage more stakeholders in green financing ecosystems, capital sources must be diversified, attracting broader market participation. Simultaneously, enterprises should enhance risk management, secure low-cost financing, and utilize operational resources to develop green technologies, thereby improving self-sufficiency.

Finally, integrating environmental costs and benefits into financial decision-making is essential. Redirecting financial flows away from polluting activities and toward environmentally beneficial initiatives will strengthen the green economy. Limitations of this study include reliance on data from a single organization within the Iranian dairy industry, which restricts generalizability. The framework reflects local expert perspectives, so results may vary in other contexts or populations. Moreover, since the data were collected during a specific time period, extending the findings to other periods requires caution.