The impact of European firms’ emissions reduction effectiveness on financial constraints: Evidence from the quintuple helix model perspective

This study analyzes (i) whether firms that are more committed to reducing emissions benefit from reduced financial constraints and (ii) the moderating effects of the five institutional systems of the Quintuple Helix Model (QHM), i.e., economic, education, culture, governance, and natural environment. Based on a sample of quoted European companies for the 2015–2020 period, we document that firms with greater emissions reduction effectiveness benefit from better access to finance due to fewer financial constraints. We also show that this reduction is more substantial in countries with poorer governance quality, lower GDP growth and economic freedom, less scientific production and public educational expenditure and less natural capital. Moreover, the effect of firms’ emissions reduction effectiveness on reducing financial constraints is amplified in companies situated in countries characterized by more individualism, masculinity, uncertainty avoidance and power distance, and less long-term orientation and indulgence. Overall, our results suggest a substitution effect between the market mechanism and country-level characteristics to incentivize firms to behave responsibly in countries where the QHM institutional dimensions do not favor a commitment to environmental sustainability. This novel finding of our research can be explained in light of the institutional voids theory, which encourages a more dynamic approach for examining how firms strategize – alone or in conjunction with other actors – to compensate or substitute institutional weaknesses.