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Corporate governance and green innovation: international evidence

Marcellin Makpotche (School of Management, University of Quebec in Montreal, Montreal, Canada)
Kais Bouslah (School of Management, Centre for Responsible Banking and Finance, University of St Andrews, St Andrews, UK)
Bouchra M’Zali (École des Sciences de la Gestion, Université du Québec à Montréal, Montreal, Canada)

Review of Accounting and Finance

ISSN: 1475-7702

Article publication date: 8 January 2024

Issue publication date: 3 April 2024

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Abstract

Purpose

This study aims to exploit Tobin’s Q model of investment to examine the relationship between corporate governance and green innovation.

Design/methodology/approach

The study is based on a sample of 3,896 firms from 2002 to 2021, covering 45 countries worldwide. The authors adopt Tobin’s Q model to conceptualize the relationship between corporate governance and investment in green research and development (R&D). The authors argue that agency costs and financial market frictions affect corporate investment and are fundamental factors in R&D activities. By limiting agency conflicts, effective governance favors efficiency, facilitates access to external financing and encourages green innovation. The authors analyzed the causal effect by using the system-generalized method of moments (system-GMM).

Findings

The results reveal that the better the corporate governance, the more the firm invests in green R&D. A 1%-point increase in the corporate governance ratings leads to an increase in green R&D expenses to the total asset ratio of about 0.77 percentage points. In addition, an increase in the score of each dimension (strategy, management and shareholder) of corporate governance results in an increase in the probability of green product innovation. Finally, green innovation is positively related to firm environmental performance, including emission reduction and resource use efficiency.

Practical implications

The findings provide implications to support managers and policymakers on how to improve sustainability through corporate governance. Governance mechanisms will help resolve agency problems and, in turn, encourage green innovation.

Social implications

Understanding the impact of corporate governance on green innovation may help firms combat climate change, a crucial societal concern. The present study helps achieve one of the precious UN’s sustainable development goals: Goal 13 on climate action.

Originality/value

This study goes beyond previous research by adopting Tobin’s Q model to examine the relationship between corporate governance and green R&D investment. Overall, the results suggest that effective corporate governance is necessary for environmental efficiency.

Keywords

Acknowledgements

The authors would like to thank two anonymous referees and editors for their valuable comments and suggestions. The authors would also like to express their gratitude to Lawrence Kryzanowski (Concordia University, Canada) and Jean-Pierre Gueyie (University of Quebec in Montreal, Canada) for their valuable insights and suggestions. All errors are the authors’ responsibility.

Since submission of this article, the following authors have updated their affiliations: Marcellin Makpotche is at the African Chair of Innovation and Sustainable Management (CAIMD-UM6P), Université Mohammed VI, Polytechnique, Ben Guerir, Morocco; Kais Bouslah is at the African Chair of Innovation and Sustainable Management (CAIMD-UM6P), Université Mohammed VI, Polytechnique, Ben Guerir, Morocco and Département Finance et économique, École de Gestion, Université du Québec à Trois-Rivières, Trois-Rivières, Canada and Bouchra M’Zali is at the African Chair of Innovation and Sustainable Management (CAIMD-UM6P), Université Mohammed VI, Polytechnique, Ben Guerir, Morocco.

Funding: Marcellin Makpotche is grateful to the FRQSC – Fonds de recherche du Québec, Société et Culture (Grant #2022-B2Z-306951) for providing financial support for this project. The views and conclusions contained in this document are those of the authors. There is no conflict of interest.

Compliance with ethical standards.

Disclosure of potential conflicts of interest: There is no conflict of interest and declarations of interest. All authors have seen and agree with the manuscript’s contents, and there is no financial interest to report. The manuscript is the authors’ original work, has not received prior publication, and is not under consideration for publication elsewhere.

Research involving human participants and/or animals (If applicable): not applicable.

Informed consent (If applicable): not applicable.

Citation

Makpotche, M., Bouslah, K. and M’Zali, B. (2024), "Corporate governance and green innovation: international evidence", Review of Accounting and Finance, Vol. 23 No. 2, pp. 280-309. https://doi.org/10.1108/RAF-04-2023-0137

Publisher

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Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

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