Does it pay to go green? The environmental innovation effect on corporate financial performance

• Published in: Journal of environmental management 2021-12, Vol.300, p.113695-113695, Article 113695
• Main Authors: Farza, Khouloud, Ftiti, Zied, Hlioui, Zaineb, Louhichi, Waël, Omri, Abdelwahed
• Format: Article
• Language: English
• Subjects: Corporate financial performance; Environmental innovation; Environmental management; Green management; Innovation performance
• ISSN: 0301-4797; 1095-8630
• DOI: 10.1016/j.jenvman.2021.113695

The current global economy demands synergies between ecological responsiveness and business models. To analyse this dynamic, this study investigates the relationship between green innovation and corporate financial performance for German HDAX companies from 2008 to 2019 by constructing an green innovation measure. A two-step GMM system and penalised-spline estimation are used to test the linear relationship between green innovation and financial proxies (return on assets, return on invested capital, and the market-to-book ratio). The results indicate a linear positive effect of green innovation on different financial performance measures. This suggests that green innovation drives resource efficiency and enhances corporate reputation, which, in turn, boosts financial performance. •It is possible to simultaneously achieve ecological and financial sustainability.•Corporate reputation is sensitive to ecological issues, especially for German firms.•Green innovation and corporate financial performance have a linear relationship.•Green innovation has a positive linear effect on large German firms' profitability.•Eco-innovation drives resource efficiency and improves firms' financial performance.