The Impact Of Green Innovation On Firm's Financial Performance

With the rapid development of social economy,the environmental problems in China such as pollution,resource shortage,have become more and more severe.How to balance economic growth and environmental protection is a challenging question that we have to solve.As the combination of innovation and green development,green innovation is considered as the main means to reduce the conflict between development and environmental degradation and to achieve sustainable development.Firms are main source of innovation and knowledge creation,and studying green innovation of the company is of great significance not only for itself,but the whole society.Based on the “Porter Hypothesis”,this dissertation examines the impact of green innovation on firm's financial performance.Using a sample of Chinese listed highly polluted companies during the period of 2005-2010,the study focuses on green patents as the proxy of green innovation and firm's financial performance,measured by three different indicators: ROA,the ratio of profit to sales,the growth rate of operating revenue.Considering the problem of endogeneity,we use historical capacity of green innovation(measured by the total green patents in the last 3 years)to replace the quantity of green patent in that year.The empirical results are as follows: Firstly,there is a significant “U” shape relationship between green patent applications and firm's financial performance.Secondly,there exists lag effects of the impact of green patent application on firm's performance.Thirdly,the effect of different green patent on financial performance is also different.More specifically,there is a significant “U” shape relationship with all of the three indicators of financial performance,whist green utility has no significant effect on ROA.The Results of this research is of great significance currently with the conflict between development and environmental degradation becoming more and more severe.The “U” shape relationship between green innovation and firm's performance proves that the “win-win” effect in both economic returns and environmental benefit can be achieved by adopting green innovation.Therefore,the government should implement policies to encourage firm's green innovation activity,and meanwhile,firms should have the long-term perspective,rather than only focusing in the short-term effect of green innovation on firm's performance.The contributions of this dissertation are as following: first,we use green patent to measure firm's green innovation,which is rarely done by domestic researchers.Second,we introduce the quadratic form of green patent into our research to investigate whether there exists a non-linear relationship between green innovation and financial performance.Our research enriched the literature.