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Green innovation and firms’ financial and environmental performance: The roles of pollution prevention versus control

Author

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  • Cheng, Qiang
  • Lin, An-Ping
  • Yang, Mengjie

Abstract

This study examines the effects of firms' green innovation on their future financial and environmental performance. If pollution is primarily a manifestation of wasted resources, then investments in pollution prevention technologies can both reduce the environmental impact of production and improve financial performance. In contrast, investments in pollution control technologies likely reduce the environmental impact of production without improving financial performance. Using green patents to capture firms' investments in these two types of technologies, we find that the value of a firm's pollution prevention patents is positively associated with its future financial and environmental performance, and that the positive impact on future financial performance is achieved through improvements in sales growth and cost efficiency. In contrast, the value of a firm's pollution control patents is not associated with its future financial or environmental performance. Overall, these findings shed light on the future implications of green innovation.

Suggested Citation

  • Cheng, Qiang & Lin, An-Ping & Yang, Mengjie, 2025. "Green innovation and firms’ financial and environmental performance: The roles of pollution prevention versus control," Journal of Accounting and Economics, Elsevier, vol. 79(1).
    • Handle: RePEc:eee:jaecon:v:79:y:2025:i:1:s0165410124000363
    DOI: 10.1016/j.jacceco.2024.101706
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    Cited by:

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    2. Zhang, Zhi Min & Jiang, Feng, 2025. "From financing to innovation: How green bond issuance promotes corporate green innovation in China," Finance Research Letters, Elsevier, vol. 86(PD).
    3. Huang, Zizhen, 2026. "Crowding-out effect of digitalized tax administration on corporate green innovation: Evidence from China’s Golden Tax Phase IV," Finance Research Letters, Elsevier, vol. 87(C).

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    More about this item

    Keywords

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    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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