Corporate governance and green innovation: international evidence

What is it about?

Green innovation aims to mitigate the negative impact of industrial activities on the environment. In this study, we exploit Tobin's q model of investment to examine the relationship between corporate governance and green innovation. We argue that agency costs and financial market frictions affect investment, and are fundamental factors in R&D activities. By limiting agency conflicts, stronger governance facilitates access to external financing and encourages green innovation. Using the system-GMM on a sample of 3,896 firms from 2002-2021, covering 45 countries worldwide, we find that the better the corporate governance, the more the firm invests in green R&D. We also document that an increase in the score of each dimension (management, strategy, and shareholder) of corporate governance results in an increase in the probability of green product innovation. Finally, green innovation is positively related to firm environmental performance, including emission reduction and resource use efficiency. Overall, this study reveals that corporate governance is an important determinant of environmental protection strategies. Keywords: Corporate governance, Green innovation, Climate change, Sustainable investing, Sustainable finance. JEL classification: G30 ; O32 ; Q55 ; Q56

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