Abstract：The rapid economic development is accompanied by worsening environmental problems. Firms gradually realize that we should strive to achieve a win-win situation of economy and environment, and they pay more and more attention to green patents. However, green innovation is much more risky than traditional innovation. If firms want to explore in green innovation, they have to invest a lot of money, but they may not be able to get profits quickly. A large number of enterprises still invest in green patents, although the benefit of green innovation is uncertain. Therefore, this paper attempts to learn the reasons why enterprises adhere to green innovation and explore whether green innovation can bring benefit to firms.This paper explores the relationship between green innovation and stock returns, and we aim to learn whether green innovation can bring economic benefits to enterprises. We take Chinese listed companies as samples, and the data are from 2014 to 2018. This paper also discusses the role of market competition and intellectual property protection in the relationship between green innovation and stock returns.Firstly, the paper examines the direct relationship between green innovation and stock returns. Our empirical results show that green innovation can improve stock returns. In fact, when the green innovative process fails, it means that the previous expenditures will be converted into costs, which cannot bring benefits to enterprises. However, our empirical results show that enterprises can get some “risk compensation” from green innovation.Secondly, the paper examines the moderating effect of market competition on the relationship between green innovation and stock returns. The empirical results show that when the degree of market competition increases, the relationship between green innovation and stock returns is stronger. That is, market competition plays a positive regulatory role. Although competition increases the risk of enterprises, it reduces the agency cost. In the environment of high competition, the risk of green innovation is greater, so managers will inevitably require higher risk compensation, and improve the efficiency of green innovation by strictly controlling all aspects of green innovation. This kind of more cautious green innovation in the competitive environment may be more welcomed by the market and other stakeholders, so as to enhance the stock returns. Therefore, the competitive environment increases the “risk compensation” of green innovation.Finally, the paper explores the heterogeneity of the relationship between green patents and stock returns under different degrees of intellectual property protection. We find that the relationship between green patents and stock returns is more significant in areas with low degree of intellectual property protection, and the moderating effect of market competition is further enhanced. In fact, for enterprises, a lower degree of intellectual property protection increases the risk of enterprises. In the face of this high-risk environment, enterprises carrying out green innovation will inevitably improve the awareness of protecting their own intellectual property rights and require higher risk reward compensation. At the same time, in the case of low level of intellectual property protection, a large number of green innovation enterprises are squeezed out of the market. When the supply is less than the demand in the green innovation market, the price of green innovation will rise in response. Enterprises that insist on green innovation will get higher profits. Under the threat of competition and low protection, the green innovation achievements of enterprises are more likely to flow out, which will increase the environmental performance of the whole society to a certain extent and increase the imbalance between supply and demand. The stakeholders who enjoy social welfare will further improve the evaluation of the enterprises.According to above conclusions, the paper documents that green innovation can promote the increase of stock returns, that is, enterprises can obtain risk compensation from green innovation. When the degree of market competition increases, “risk compensation” also increases. For enterprises in the environment with lower degree of intellectual property protection, the relationship between green innovation and stock returns is more significant, and the regulatory role of market competition is further strengthened. That is, “risk compensation” effect still exists.

Keyword：green innovation; risk compensation; market competition; intellectual property protection;