Multinationality and the value of green innovation

Authors

Incheol Kim, The University of Texas Rio Grande ValleyFollow
Christos Pantzalis
Zhengyi Zhang

Document Type

Article

Publication Date

8-2021

Abstract

Highlights

• High exposure to foreign markets with more stringent environmental regulations stimulates MNCs' green patent applications.

• The pursuit of green innovation is positively associated with firm value in the long run.

• This long-run advantage is more significant when MNCs' home countries rely on more clean energy for power generation, have a more developed economy and have a more effective government.

• MNCs' environmental competitive advantage is coupled with exposure to MNCs' host countries with high long-term and femininity orientations.

Abstract

When do multinational corporations (MNCs) derive the most from internalizing the transfer of proprietary technological knowhow? We revisit this question, which lies at the core of theories on multinationality and performance, from the perspective of corporate strategy involving a mix of green versus nongreen innovation effort and foreign operations focusing on countries with high versus low environmental standards. We find that high exposure to foreign markets with more stringent environmental regulations stimulates MNCs' green patent applications. Predictably, the pursuit of green innovation is positively associated with firm value in the long run. This long-run advantage produces higher economic rents when MNCs' home countries rely on more clean energy for power generation, have a more developed economy and have a more effective government. We further show that this long-run value enhancement effect is more pronounced in Mining & Oil and energy sectors (i.e., more polluting) than sales and service sectors (i.e., less polluting). In addition, MNCs' environmental competitive advantage obtained through green innovation activities is coupled with exposure to MNCs' host countries with high long-term and femininity orientations. Overall, our study highlights that green technology development is a main source of value creation for multinationals.

Comments

Original published version available at https://doi.org/10.1016/j.jcorpfin.2021.101996

Recommended Citation

Kim, I., Pantzalis, C. and Zhang, Z., 2021. Multinationality and the value of green innovation. Journal of Corporate Finance, 69, p.101996. https://doi.org/10.1016/j.jcorpfin.2021.101996

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Publication Title

Journal of Corporate Finance

DOI

10.1016/j.jcorpfin.2021.101996