LAUSR

An ongoing debate in the literature is whether rule‐breaking actors are more innovative than others. This study examines how corporate misconduct influences green innovation. We find that firms involved in misconduct experience a 14.7% reduction in green patent quantity and a 20.4% decrease in citations, demonstrating a detrimental effect on green innovation. This adverse impact is more pronounced within firms characterized by lower transparency, higher default risk, independent central research institutes, stronger top management team power, and weaker local intellectual property protection. Our findings remain robust and consistent when implementing change analysis and instrumental variable approach. Further analysis indicates that corporate misconduct primarily inhibits green innovation by fostering a culture of dishonesty, releasing signals, and reducing human capital. Our findings contribute to the literature gap by establishing a direct link between corporate misconduct and green innovation, offering new insights into how dishonesty undermines long‐term strategic capabilities in emerging markets.