["Economics &Politics, EarlyView. ", "\nABSTRACT\nGreen innovation is pivotal for China's sustainable development. This study investigates the economic consequences of stock market mispricing—a prevalent feature of China's developing capital market—on corporate green innovation. Using a sample of Chinese A‐share listed firms from 2007 to 2020, we find that stock market mispricing, particularly overvaluation, significantly promotes corporate green innovation. We further explore the underlying mechanisms and identify two primary channels. First, mispricing incentivizes managers to increase information opacity by reducing the readability of annual reports. Second, it leads to higher executive excess compensation, which helps align managerial incentives with long‐term, high‐risk innovation projects. Moreover, we document a chain mediation effect where increased information opacity leads to greater executive excess compensation, which in turn stimulates green innovation. This overall effect is more pronounced for firms with greater analyst coverage and a stronger corporate focus on green initiatives. This study contributes to the literature on the real effects of financial market frictions, demonstrating how stock market inefficiency can paradoxically foster corporate investment in green technology through complex agency and information channels. Our findings offer novel insights into the weak‐form efficiency of China's capital market and provide salient policy implications for promoting sustainable corporate development.\n"]