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Can environmental innovation be a conventional source of higher market valuation?

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  • Truong, Yann
  • Berrone, Pascual

Abstract

We employ the literature on institutional theory and environmental management to argue that environmental innovation as an unconventional source of innovation can lead to financial performance through environmental legitimacy. Using data on environmental innovation (in the form of patents), environmental legitimacy, and market valuation for 191 industrial firms in polluting industries for a 25-year period, our analysis supports our argument. The results show that environmental innovation has a positive impact on market value, but this relationship is partially mediated by legitimacy. Although firms tend to not consider environmental innovation as a conventional source of competitive advantage and financial returns, our findings indicate that managers of industrial firms should focus their operations on developing environmental innovations to attain legitimacy in industries that are stigmatized by high pollution levels. In turn, environmental legitimacy will not only shield the firm from the industry’s mounting institutional pressures but also lead to higher market valuation.

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  • Truong, Yann & Berrone, Pascual, 2022. "Can environmental innovation be a conventional source of higher market valuation?," Journal of Business Research, Elsevier, vol. 142(C), pages 113-121.
    • Handle: RePEc:eee:jbrese:v:142:y:2022:i:c:p:113-121
    DOI: 10.1016/j.jbusres.2021.12.040
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