Green Innovation and Financial Performance: An Institutional Approach

Abstract

Green innovation incorporates technological improvements that save energy, prevent pollution, or enable waste recycling and can include green product design and corporate environmental management. This type of innovation also contributes to business sustainability because it potentially has a positive effect on a firm’s financial, social, and environmental outcomes. However, the specific effect of green innovation on these outcomes can be highly influenced by the national context in which firms develop their activities. Using an institutional approach and employing a sample of 88 green innovative firms and 70 matched pairs (green innovative and non–green innovative firms), we find that green innovative firms are situated in contexts characterized by more stringent environmental regulations and higher environmental normative levels.Nevertheless, when compared to non–green innovative firms, we observe that green innovative firms do not experience improved financial performance. In focusing on green innovative firms, we note that the intensity of green innovation is positively related to firm profitability. Finally, we study whether national institutional conditions (stringency of environmental regulations and normative levels) impose a moderating effect on the relationship between green innovation intensity and the financial performance improvement of innovative firms. Our results show that regulatory and normative dimensions do not have the same influence on that relationship, creating implications for academia, managers, and policy makers.