The 20th National Congress of the Communist Party of China emphasized the need to firmly establish and practice the concept of “lucid waters and lush mountains are invaluable assets.” In March 2025, the Ministry of Ecology and Environment of China officially included heavily polluting industries in the nationwide carbon emission trading system, marking the formal entry of heavy polluting enterprises into a path of green transformation under stringent national supervision. Green investments, which can substantially reduce emissions and drive the green upgrade of industrial chains, have long-term value. Existing research has mainly explored the differences in green investments from the macro perspectives of environmental regulation and green finance, but insufficient attention has been paid to the green effectiveness of institutional investors as a key governance body. Compared to “voicing” and “actual exit”, institutional investors can create more sustainable external governance forces by signaling a “potential exit”, leading to market repricing and capital cost pressure. This method is more feasible in the context of high shareholding concentration in China. Based on exit threat theory, we expand the concept of exit threat from traditional corporate governance to the scenario of green transformation in heavily polluting enterprises. It proposes and demonstrates that the exit threat of institutional investors positively promotes green investments in heavy-polluting enterprises, thus showing the green governance effectiveness of “exit for entry.” This conclusion not only responds to the debate on the effectiveness of exit-based governance but also provides support for guiding institutional investors toward “long-term money and long-term investment”. It also provides a reference for enhancing the targeted nature of green transformation in heavy-polluting enterprises under the background of expanding the carbon market.
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