Board Capital And Green Innovation

The significant expansion in natural resource extraction,industrial production,and greenhouse gas emissions poses a constant threat to environmental preservation.The Paris agreement(signed by 196 countries)is a major breakthrough in keeping environmental pollution at low levels.Firms are under constant social and regulatory pressures to enhance corporate governance effectiveness to mitigate environmental impacts.In the given background,green innovation has become a key strategic tool to achieve long-term success and sustainable development,and there are various calls to investigate the corporate governance antecedents of green innovation.At the corporate level,strategic initiatives such as green innovation are normally taken by the board of directors.A review of extant literature underlines the structural nature of board attributes which are commonly used as determinants of green innovation.Furthermore,most of the studies examining the relationship between corporate governance mechanisms and green innovation are conducted in developed country contexts.Board capital captures the real abilities of board members.Therefore,to better understand the strategic function of boards in terms of green innovation,particularly in the emerging market context of China,we examine the impact of board capital on green innovation in China.By using a "theory mix" of resource dependence theory,agency theory,stakeholder theory,institutional theory,and upper echelons theory,we propose that board capital(comprising of human and social capital)positively influences green innovation performance.In terms of indirect association,we further hypothesize that absorptive capacity mediates while external governance mechanisms moderate the board capital-green innovation relationship.Moreover,as the ultimate objective of enhanced green innovation is to have a positive effect on the performance of the firm,we further explore the interrelationships between board capital,green innovation,and environmental performance;and propose that green innovation mediates the board capital-environmental performance relationship.The dataset of Chinese listed firms(2010-2018)is employed.The study used different robustness tests along with conventional econometric techniques to test the hypothesis.Consistent with expectations,the findings show that board capital has a positive and significant effect on green innovation.We also confirm that absorptive capacity mediates this relationship.Moreover,the association between board capital and green innovation is positively moderated by external governance mechanisms of audit quality,media coverage,and leverage.Finally,on examining the interrelationship between board capital,green innovation,and environmental performance,we identified that green innovation mediates the board capital-environmental performance relationship.The study sheds new light on the empirical findings of the previous research that has tried to link corporate governance to green innovation and environmental performance.In addition,the results of this study have significant theoretical and practical implications.First,from a theoretical point of view;the study results support the validity of the "theory mix".Prior research mostly follows a single theory perspective when explaining the relationship between board attributes and green innovation.The current study contradicts this by arguing that missing important theoretical underpinnings can be misleading because boards(i.e.upper echelons)perform multiple roles(i.e.monitoring and resource provision etc.)and there are different motivations(i.e.institutional,stakeholders,and resource provision,etc.)behind perusing green innovation strategy.The theory mix thus predicts that greater green innovation is expected from firms whose boards have higher human and social capital.Second,the study has implications for academicians,practitioners,shareholders,and policy-makers as they should consider the education level,expertise,and interlocking relationships of potential and existing directors to enhance the board’s ability for correct strategic decisions.Third,as the present study underlines the mediating role of absorptive capacity in the board capital-green innovation relationship,it suggests that if corporations are to achieve green innovation targets through greater board capital,they must recognize the value of external knowledge exploitation.Fourth,since green innovation inherently carries more risk,has double externality,and offers a longer-term return on investment,it lacks internal motivation.The current study suggests that external governance mechanisms namely better quality audit,persistent media coverage,and high leverage can positively moderate the effect of board capital on green innovation;thereby regulators can develop policies to promote these external governance facets for effective sustainable development.The external governance mechanisms have special importance in contexts where typical monitoring mechanisms such as board independence or institutional investment do not work.Fifth,as the ultimate objective of enhanced green innovation is to have better performance of the firm,the study links board capital,green innovation,and environmental performance to highlight that green innovation mediates the board capital-environmental performance relationship.Therefore policymakers can formulate corporate governance strategies that focus on enhancing firm performance through green innovation.Finally,conducting this study in the emerging country China has important implications.The study offers empirical insights on how corporate governance theories can be turned into practice and how the board’s education,expertise(human capital),and external links(social capital)shape important strategic decisions(i.e.green innovation)in China given that conventional corporate governance mechanisms do not work here and China has international environmental commitments.