Interest subsidy versus innovation subsidy: optimal financing strategy for green supply chains under government intervention

Financing and government subsidies alleviate financial constraints in green supply chains. This study analyses a cash–constrained manufacturer's choice between bank financing (BF) and trade credit financing (TCF) under government interest or innovation subsidies, using four Stackelberg game models (RB, RI, GB and GI). Key findings show that 1. Manufacturers prefer TCF under high bank interest rates but BF otherwise. 2. Equal subsidy standards enhance BF's comparative advantage. 3. Low government budgets favour interest subsidies, while sufficient budgets enable innovation subsidies to drive higher green investment levels. 4. Crucially, innovation subsidies outperform interest subsidies when government budgets exceed $1.2M, establishing a novel policy benchmark. 5. For China's Pilot Zones (reporting 68% subsidy misallocation), allocating ≥80% of budgets >¥100M to innovation subsidies reduces misallocation by 19–37%. The paper identifies optimal green investment thresholds, quantifies subsidy impacts on financing strategy and demonstrates the superior efficacy of innovation subsidies under adequate funding, providing critical insights for subsidy policy design and supply chain coordination.