Although prior studies have investigated the impacts of external pressures and intra-organizational attributes on firm’s green innovation, the question of how and why firm’s compliance activities affect its green innovation remains underexplored. The current research aims to fill this important gap by examining firm’s ambidexterity in the resource-competing tension between compliance activities and competence-enhancing activities. We propose that compliance can promote firms’ green innovation. We take the Targeted Poverty Alleviation (hereinafter abbreviated as TPA) initiative in China as a natural experiment and use the difference-in-differences (DD) research design. We find that participation in the TPA initiative enhances the firm’s political legitimacy, thus enabling firms to access more financing from government-backed financial institutes to fund their R&D activities and promote their green innovation. This positive effect is moderated by environmental issue salience at the regional level and also by the focal firm’s independence on the institutional pressuring constituents. Our study extends the compliance research into the domain of firm innovation and our findings shed new light on the tension between compliance and competitiveness.
