Green innovation as a strategic tool to address institutional and market trade-offs: a Chinese context

<p dir="ltr">Environmental problems caused by human activities and economic development are severe. Despite the growing interest in recent years in how governments and firms can address environmental challenges through green innovation, research around green innovation is still not comprehensive enough. Currently, research on green innovation is often fragmented and lacks a cohesive focus. This thesis contains three empirical studies that examine green innovation behaviors’ dual attributes, different logics, and the financial performance of industry green innovation behavior. This thesis aims to make original contributions to theory and practice, thus providing new perspectives on green innovation research concerning firms and industries.</p><p dir="ltr">The first study explores the issue of the dual attributes of green innovations and the boundary role of external institutional features (gender of officials, hometown ties, and green subsidies) using institutional theory and official promotion tournament perspectives. Although scholars agree that green innovation is an effective method to address environmental challenges, whether green innovation can simultaneously address the environmental problems and economic needs faced by firms through empirical or theoretical analysis is still insufficient. Through the unique institutional context of Chinese officials being promoted to fulfill economic or environmental goals, this study finds that only officials with moderate career horizons will require firms to pursue green innovation. This inverted U-shaped result demonstrates the dual attributes (economic and environmental) of green innovation, as officials in moderate career horizons have both economic and environmental pressures. In addition, the gender and hometown ties of officials make the curve steeper, while green subsidies attenuate the inverted U-shaped relationship. These empirical results remain robust after controlling for sample selection bias, endogeneity, and the use of alternative variable measurement and estimation methods.</p><p dir="ltr">The second study examines the differences between green innovation and general innovation from institutional and market perspectives, identifying the governmental and market logics inherent in green innovation. This study extends the green innovation literature by examining the relationship between executives’ political connections and corporate (non-)green innovation through institutional logic theory. Although a large body of existing literature illustrates that firms engage in green innovation due to the institutional pressures and special resource conditions, and green innovation has an impact on corporate financial performance, why firms are proactive in implementing green innovation strategies is often overlooked. This study uses double/debiased Machine Learning and Zero-inflated negative binomial regression approaches to show that executives who have achieved political connections (serving on Lianghui, which is the annual plenary meetings of China’s two top political bodies) are positively associated with both green innovation and general innovation, especially green innovation. When the CEO has overseas experience, the positive relationship between innovation strategies (both green and general innovation) and firm outcomes is strengthened. In contrast, this positive association is weakened when the CEO holds dual roles. In addition, CEO’s ascribed political connections and regions’ marketization level have opposite effects on corporate general innovation strategies. These empirical findings theoretically validate the governmental and market logics underpinning green innovation and remain robust across various additional tests.</p><p dir="ltr">Through the study of a single institutional perspective and an integrated institutional and market perspective, this thesis confirms the dual attributes (economic and environmental) and dual logic (market and government) of green innovation. The third study explores the relationship between green innovation and market performance from a market perspective. Green innovation, as an activity of introducing a new technology or process that considers environmental impacts, while giving firms a competitive advantage, also increases their resource inputs. It is crucial to comprehensively consider the impact of technological complexity in green innovation on market performance. This study used data from a representative green innovation industry, new energy vehicles, and utilized technology affordance theory and technology readiness concept as the theoretical basis. The results provide empirical evidence that the relationship between technological complexity in green innovation and market performance is an inverted U-shape. Notably, this inverted U-shaped relationship flattens when consumer attention is higher and steepens when negative media coverage is high. A series of additional tests shows that the empirical evidence is not affected by sample selection, endogeneity issues, or other variable measures.</p><p dir="ltr">Overall, the three studies progress from a single-theory lens (institutional) to dual-logic perspectives (institutional and market), and finally to performance analysis, thus offering a comprehensive view of green innovation. This thesis provides a better understanding of green innovation by complementing the attributes, logics, and market performance of green innovation, as well as a focus on the moderating role of both internal and external factors to the firm. The findings of this thesis provide important guidance for different market participants. First, firm managers can actively engage in green innovation to address the trade-offs between the institutional and the market. Managers should recognize that green innovation is not only a way of responding to external institutional pressures related to the environment, but also a way to provide firms with the opportunity to meet both institutional and economic requirements. Second, policymakers need to consider the regional institutional conditions and the characteristics of regional officials when designing and implementing corporate environmental policies. As a strategy that incorporates both economic and environmental attributes, the government can provide appropriate subsidy policies or media campaign policies to encourage firms to become more involved in green innovation. Finally, for the industry, the results of this thesis suggest that the application of complex technologies of green innovation will not enhance market performance indefinitely. Instead, considering consumer acceptance and readiness for the technology is an important factor in utilizing green innovation to enhance value. Through these three studies, this thesis provides valid insights and empirical support for the idea that firms use green innovation as a strategic tool to address the trade-offs of the economy (market) and the environment (institutional).</p>