The Dual Impact of Low-Carbon City Pilots: Financing Constraints, Eco-Innovation, and Corporate Performance in China*

Using China's three waves of low-carbon pilot cities (2010, 2012, 2017) as a quasi-natural experiment, we employ a multi-period difference-in-differences on A-shares firms (2008–2020) to assess environmental regulation's effects on market and sustainability performance. The pilots significantly improve both, with dynamic effects. In terms of mechanisms, the policy boosts research and development and eco-innovation, thereby supporting the Porter hypothesis; however, it simultaneously tightens financing constraints, which dampens market performance but not long-term sustainability. Regarding heterogeneity, state-owned enterprises outperform in sustainability while lagging in market performance, and higher market concentration amplifies market gains yet suppresses sustainability; conversely, institutional investors strengthen long-term orientation and significantly enhance sustainability performance.