Sustainability-4223963

In an increasingly volatile global economy, countries are scaling up financial investment in innovation to sustain their competitive advantages. Financial institutions represented by banks are facing the challenge of aligning more radical financial policies for innovation with their own business sustainability, and innovative has thus become a key issue confronting the banking . Existing studies mostly explain financial innovation from the external incentive perspective, leaving theoretical divergences and empirical paradoxes on the core innovation dynamics unclear. Adopting the novel perspective of constraint-induced innovation theory, which challenges the dominant external pull view in existing literature, this paper takes China’s tech-finance integration pilots as a quasi-natural experiment, and uses the Double/Debiased Machine Learning model to identify causal effects with panel data of 142 Chinese regional banks from 2008 to 2024. We find that tech-finance integration policies induce regional banks’ financial innovation through the dual channels of profitability and safety constraints. Banks have to innovate to cope with the pressure brought by new policy, and constraint-induced innovation is the main dynamics mechanism. Meanwhile, financial innovation positively amplifies the policy’s impact on banks’ business sustainability. This study bridges the gap between existing theory and empirical evidence, extends the research boundary of financial innovation dynamics.