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Environmental innovation and firm profitability: An analysis with respect to firm size

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  • Axenbeck, Janna

Abstract

This paper investigates the effect of environmental innovations on firm profitability with respect to differences between small and medium-sized (SME) and large (LE) enterprises. Using data from the Mannheim Innovation Panel (MIP) 2015, results show that, in general, SME benefit more from environmental innovations than LE. This effect is particularly strong for resource efficiency-improving innovations induced by regulation. These environmental innovations are significantly related to an increase in profits of SME, whilst related to a decrease in profits of LE. A robustness check with data from the MIP 2009, however, does not confirm this result as the effect for LE is insignificant and differences between the two groups cannot be found in this survey wave. A reason why negative effects for LE are observed in the MIP 2015 - but not in the MIP 2009 - might be that most LE had already exploited the potentials of environmental innovations when they were surveyed in the MIP 2015. This is supported by evidence suggesting that size-related differences in the MIP 2015 are driven by a negative relationship between LE's profits and environmental innovations related to externalities that were reduced by innovations in periods before.

Suggested Citation

  • Axenbeck, Janna, 2019. "Environmental innovation and firm profitability: An analysis with respect to firm size," ZEW Discussion Papers 19-033, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:19033
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    References listed on IDEAS

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    1. Mark A. Cohen & Adeline Tubb, 2018. "The Impact of Environmental Regulation on Firm and Country Competitiveness: A Meta-analysis of the Porter Hypothesis," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 5(2), pages 371-399.
    2. Jaffe Adam B. & Stavins Robert N., 1995. "Dynamic Incentives of Environmental Regulations: The Effects of Alternative Policy Instruments on Technology Diffusion," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 43-63, November.
    3. Becker, Randy A. & Pasurka, Carl & Shadbegian, Ronald J., 2013. "Do environmental regulations disproportionately affect small businesses? Evidence from the Pollution Abatement Costs and Expenditures survey," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 523-538.
    4. Jana Stoever & John P. Weche, 2018. "Environmental Regulation and Sustainable Competitiveness: Evaluating the Role of Firm-Level Green Investments in the Context of the Porter Hypothesis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 70(2), pages 429-455, June.
    5. Andrew A. King & Michael J. Lenox, 2001. "Does It Really Pay to Be Green? An Empirical Study of Firm Environmental and Financial Performance: An Empirical Study of Firm Environmental and Financial Performance," Journal of Industrial Ecology, Yale University, vol. 5(1), pages 105-116, January.
    6. Rahbauer, Sebastian & Menapace, Luisa & Menrad, Klaus & Decker, Thomas, 2016. "Adoption of green electricity by small- and medium-sized enterprises in Germany," Renewable and Sustainable Energy Reviews, Elsevier, vol. 59(C), pages 1185-1194.
    7. Ambec, Stefan & Barla, Philippe, 2002. "A theoretical foundation of the Porter hypothesis," Economics Letters, Elsevier, vol. 75(3), pages 355-360, May.
    8. Rammer, Christian & Crass, Dirk & Doherr, Thorsten & Hud, Martin & Hünermund, Paul & Iferd, Younes & Köhler, Christian & Peters, Bettina & Schubert, Torben, 2016. "Innovationsverhalten der deutschen Wirtschaft: Indikatorenbericht zur Innovationserhebung 2015," The Annual German Innovation Survey, Key Figures Reports 128149, ZEW - Leibniz Centre for European Economic Research.
    9. Becker, Randy A. & Pasurka, Carl & Shadbegian, Ronald J., 2013. "Do environmental regulations disproportionately affect small businesses? Evidence from the Pollution Abatement Costs and Expenditures survey," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 523-538.
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    More about this item

    Keywords

    Firm Behavior; Firm Size; Porter hypothesis; Environmental Technology Adaption; Technological Innovation; Environmental Regulation;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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