This study examines direct and indirect effects among stakeholder pressure, green dynamic capabilities, green innovation, and performance of emerging market small and medium‐sized enterprises (SMEs). Using survey questionnaires, we collected multisource data from 248 SMEs in the manufacturing sector. We used the partial least squares (PLS) path modeling approach (PLS‐PM) to examine the hypotheses of the study. The study results indicate that stakeholder pressure influences green dynamic capability, green dynamic capability influences green innovation, and green innovation influences firm performance. Furthermore, results also suggest that green dynamic capability mediates the influence of stakeholder pressure on green innovation and green innovation mediates the impact of green dynamic capability on firm performance. The findings of the study suggest critical implications for both theory and practice.