1 Introduction

Green innovationFootnote 1 is becoming increasingly important for companies in the US market. Companies are facing increasing pressure to reduce their environmental footprint and comply with regulations related to climate change and sustainability. Previous research suggests that developing and implementing effective green innovations can provide companies with a competitive edge in their industries and lead to improved environmental, social, and governance (ESG) performance (i.e., Ahmed et al., 2021; Bashir et al., 2023; Makhloufi et al., 2023; Mishra, 2017; Nassani et al., 2023; Pan et al., 2023; Raza & Khan, 2022; Rexhepi et al., 2013). The role of green innovation and energy efficiency in promoting environmental performance is crucial in both developed and emerging economies, underscoring the significance of sustainable development (Singh et al., 2023). Adopting cleaner technology and implementing effective natural resource management practices are crucial for achieving environmental sustainability (Shaheen et al., 2022).

Despite extensive research on the effects of green innovation on firm performance, value, and risk reduction, there are still notable gaps in the existing literature. Due to the complexity and multifaceted nature of green innovation, there is a limited understanding of the specific factors that drive the adoption of green innovation in corporations.Footnote 2 It is crucial to identify and understand these drivers for developing effective strategies and policies to promote sustainable business practices. Moreover, underlying mechanisms or channels through which these effects are realized and exploring the specific mechanisms can provide a deeper understanding of the causal relationships between green innovation and its impacts. Therefore, addressing these research gaps can contribute to a more comprehensive understanding of the drivers, mechanisms, and contextual factors related to corporate green innovation and its impacts, enabling more informed decision-making and the development of effective strategies for promoting sustainable business practices.

To fill the identified research gaps, this study employs empirical research methods to explore the specific drivers that influence the adoption of green innovation in corporations. This will provide a deeper understanding of the underlying factors and contribute to the existing literature by enriching the knowledge of the determinants of green innovation. Nevertheless, this study begins by testing several determinants of green innovation. Next, this study extends the argument to propose and test a more refined prediction. In detail, this study conducts preliminary prediction that firms should enjoy a green innovation benefit. (A greater green innovation score can potentially lead to higher firm value and mitigated risk.)

This study examines the connection between corporate green innovation and its positive impacts by analyzing firm-level data from the S&P 500 between 2001 and 2022. Building on previous research, the study hypothesizes that strong corporate green innovation has a positive effect on enhancing firm value and reducing risk. This study aims to reveal that green innovation leads to a reduction in firm volatility and credit risk, while simultaneously increasing firm value and improving emission performance. To strengthen the main findings, the study employs various robustness tests, and the outcomes contribute to the growing body of literature on the vital role of corporate characteristics in promoting sustainable business practices through green innovation.

Of direct relevance, these factors then manifest in the relative benefits of reduced agency costs, more efficient financing and investing decisions, and enhanced monitoring. The underlying arguments are formally developed in the next section, Sect. 2, along with the hypotheses. In brief, the literature suggests that green innovation reduces firm risk and enhances firm value. Noted from existing studies that information asymmetry is mitigated and the risk-shifting problem (managers make risky investment decisions that maximize equity shareholder value at the expense of debtholders’ interests) is relatively less severe in firms with great green innovation.

The findings shed light on the potential benefits of corporate green innovation, highlighting how it can positively impact firm performance, value, and risk. It also underscores the importance of companies adopting environmentally sustainable practices to enhance their competitive advantage and improve their bottom line. Furthermore, it can help organizations better understand the long-term impact of green innovation on firm competitiveness and sustainability. By identifying the factors that facilitate or hinder the adoption of green innovation, this study provides policymakers and regulators with evidence-based recommendations on how to create a conducive environment for sustainable business practices. This study provides investors with valuable information on the economic and environmental benefits of green innovation. Moreover, investors can use the findings of such studies to identify firms that have sustainable business practices and are better positioned to create long-term value. Overall, the study of the impact of green innovation on firm performance, value, and risk reduction can benefit a wide range of stakeholders by providing valuable insights into how sustainable practices can create economic, environmental, and social value.

The remainder of this paper proceeds as follows. Section 2 summarizes the literature and develops hypotheses. Section 3 discusses the empirical methodology and describes the sample data. Section 4 presents the empirical results, and finally, Sect. 5 concludes the study.

2 Hypothesis and related literature

This section constructs the hypothesesFootnote 3 and discusses the relevant literature. Specifically, H1–H3 investigate the determinants of green innovation. The three determinants to be investigated are proxied as CSR-linked executive compensation incentives (H1), CEO tenure (H2), and corporate network size (H3). Meanwhile, H4–H7 explore the potential positive impact of green innovation on firm performance and risks, proxied by four variables: firm value (H4), environmental emissions (H5), firm volatility (H6), and firm credit risk (H7).

Fig. 1
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Mechanism of transmission: determinants of green innovation and the impacts on firm performance and risk

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2.1 Factors leading to greater green innovation

Recent studies have documented that high ESG performance positively affects green innovation, which in turn contributes to sustainable development (Lian et al., 2023; Sun et al., 2022). Moreover, Hao and He (2022) provide evidence from China of a positive relationship between CSRFootnote 4 performance and green innovation. Likewise, Chkir et al., (2021) investigate the impact of CSR on corporate innovation internationally, and they find that CSR has a positive impact on corporate innovation. Besides, the link between environmental and social governance implementation and innovation performance, and CSR has a positive impact on innovation capacity (Broadstock et al., 2020).

CSR-linked compensation is a system where a portion of an employee’s or executive’s pay is based on the company’s performance in meeting specific corporate social responsibility (CSR) goals and targets (Phung et al., 2022; Gao et al., 2023). Phung et al. (2022) explore the relationship between top management compensation and firms’ green innovation strategies and find a positive relationship. Likewise, Gao et al. (2023) investigate the link between executive compensation and corporate social responsibility (CSR) and firm risk and indicate that higher executive compensation is associated with lower firm risk but only when the firm has strong CSR practices.

Besides, a recent study examines the impact of CEO power and CSR-linked compensation on corporate environmental responsibility in the UK. The findings indicate that CEO power positively moderates the relationship between CSR-linked compensation and corporate environmental responsibility (Al-Shaer et al., 2023). High ESG performance, CSR performance, and CSR-linked compensation are positively associated with green innovation and innovation capacity, contributing to sustainable development, firm performance, and corporate environmental responsibility. Therefore, this study proposes hypothesis 1 as below.

H1: Ceteris paribus, CSR-linked executive compensation incentive has a positive impact on corporate green innovation.

Previous studies also indicate that CEO tenure affects corporate green innovation. Xu et al. (2021) examine the relationship between corporate environmental responsibility, CEO tenure, and innovation legitimacy in Chinese listed companies and find that CEO tenure positively moderates the relationship between environmental responsibility and innovation legitimacy. Besides, recent evidence shows that provincial officials’ political pressure and CEO’s environmental awareness significantly affect firms’ green innovation performance (Wang et al., 2023). In addition, Chen (2013) studies the relationship between CEO tenure, independent directors, and corporate innovation and shows that independent directors play a significant role in enhancing the positive effect of CEO tenure on innovation.

Further, Mousa and Chowdhury (2014) examine the moderating effects of CEO tenure and compensation on the relationship between organizational slack and innovation. They indicate that CEO tenure and compensation moderate the relationship between slack and innovation. As evidenced by findings indicating that CEO tenure positively moderates the relationship between environmental responsibility and innovation legitimacy and that factors such as political pressure, environmental awareness, independent directors, and compensation also impact the relationship between CEO tenure and innovation. Hence, this study proposes the following hypothesis 2.

H2: Ceteris paribus, firms of CEOs with longer tenure tend to have better green innovation.

Further, the literature shows that corporate network sizeFootnote 5 has an impact on green innovation. Cainelli et al. (2012) study the role of local networks in firms’ green innovations and find that firms’ participation in local networks is positively related to their green innovation performance and internationalization. Moreover, larger innovation networks and higher public R&D investment are positively associated with regional innovation efficiency (Hong et al., 2020). Likewise, R&D investment, human capital such as networking, and top management support have significant effects on firms’ green innovation performance (Ji & Miao, 2020; Liao et al., 2021). Therefore, corporate network size has a significant impact on green innovation, as evidenced by studies showing that participation in local networks, larger innovation networks, higher public R&D investment, networking, and top management support are positively associated with firms’ green innovation performance. This study proposes the third hypothesis.

H3: Ceteris paribus, larger corporate network size leads to greater green innovation.

2.2 The Effect of green innovation on firm value and Risk

Existing literature has consistently demonstrated the positive effects of corporate green innovation on firm value and risk reduction. In detail, Aguilera-Caracuel and Ortiz-de-Mandojana (2013) investigate the relationship between green innovation and financial performance and find a positive correlation between these two factors. Moreover, Vasileiou et al. (2022) conduct a study on Italian firms, analyzing the impact of green innovation on financial performance. They find that environmental patents are positively associated with firm value. Likewise, another recent study investigates the relationship between innovation input and firm value, they indicate that innovation input has a positive effect on firm value and internal control moderates this relationship (Liu & Lyu, 2022; Ma et al., 2022).

Furthermore, Lee et al. (2015) examine the effects of carbon emissions and environmental R&D investment on firm performance and indicate that carbon emissions have a negative impact on performance, while environmental R&D investment has a positive effect. Meta-analyses conducted by Liao et al. (2021) and Kluza et al. (2021) further support the positive relationship between green innovation and firm performance. Additionally, Suto and Takehara (2022) identify a positive link between employee-oriented corporate social responsibility, innovation, and firm value.

Additionally, evidence shows that sustainability strategies, environmental and social innovations, and firm performance positively affect firm performance (García-Piqueres & García-Ramos, 2022; Hermundsdottir & Aspelund, 2022; Luan & Wang, 2023). In a recent study, Xiang et al. (2022) analyze the financing of corporate green innovation. They find that firms with higher growth opportunities and larger sizes are more likely to receive financing for green innovation. The accumulated research suggests that corporate green innovation has a positive impact on firm value, financial performance, performance outcomes, and innovation, emphasizing the benefits of integrating sustainability strategies, environmental and social innovations, and employee-oriented CSR practices. Thus, this study proposes H4 and H5 as below.

H4: Ceteris paribus, green innovation has a positive effect on firm value.

H5: Ceteris paribus, green innovation has a positive impact on environmental emissions.

There is evidence that green innovation can reduce firm risk. For example, Meles et al. (2023) examine the influence of green innovation on default risk in Europe. They find that firms with high levels of green innovation face lower default risk. Besides, Araújo et al. (2022) analyze the influence of green innovation on corporate sustainability in Latin American companies, which indicates that green innovation positively affects corporate sustainability. In addition, Zheng et al. (2022) investigate the effect of green innovation on ESG ratings and financial performance for Chinese GEM-listed companies, they find that green innovation has a positive impact on both ESG ratings and financial performance. Moreover, Dorfleitner and Grebler (2022) analyze the relationship between CSR and systematic risk and find that CSR has a negative impact on systematic risk.

Likewise, Banerjee and Gupta (2017) examine the effects of environmental sustainability and R&D on corporate risk-taking, and they show that environmental sustainability has a negative impact on risk-taking, while R&D has a positive effect. Green investment improves energy firm performance, and there is a positive relationship between green investment and firm performance (Chen & Ma, 2021). Moreover, Zhang et al. (2020) investigate the drivers of sustainable development for enterprises. They focus on ESG management and green technology innovation, which find that these factors have a positive impact on firm performance. Green innovation is associated with reduced firm risk, improved corporate sustainability, enhanced ESG ratings, lowered systematic risk, decreased risk-taking, and positive effects on financial performance, highlighting the value of integrating environmental sustainability, R&D, green investment, and ESG management practices. This study proposes the H6 and H7 and expects that green innovation brings positive effects to firms in the mitigation of risk.

H6: Ceteris paribus, greater green innovation tends to reduce firm volatility.

H7: Ceteris paribus, greater green innovation tends to mitigate firm credit risk.

3 Data and methodology

3.1 Methodology

3.1.1 Factors that affect green innovation

This study estimates ordinary least squares (OLS) regression as in Eq. (1) for H1-H3. Specifically, the association between green innovation and CSR-linked compensation incentives (H1). H2 is related to the impact of CEO tenure on green innovation, and H3 investigates the relationship between networking size and corporate green innovation. All regression models incorporate the year and industry fixed effects and cluster at the firm level. Variables and proxies are discussed in the following section.

$$Innovation = \beta_{0} + \beta_{1} Factor + \beta_{2} X + \beta_{3} Z + {\text{FE}} + \varepsilon$$
(1)

where Innovation–corporate green innovation is measured using the green innovation score. Factor represents a vector of the variable of interests that has a detrimental effect on green innovation: CSR-linked compensation, CEO tenure, and network size. The X and Z are vectors of firm-level variables to control for additional financial (X) and board characteristics (Z) identified within the literature as influencing green innovation. The FE represents the inclusion of year, industry-fixed effects. The specific variables included as controls are discussed in detail below. All variable definitions are summarized in Appendix 1. The model is run using OLS with standard errors clustered at the firm level. Based on H1–H3, this study expects the coefficient on Factor to be positive (i.e., β1 > 0).

3.1.2 Impact of green innovation on firms

In the second part of this study, in H4 to H7, the positive impact of green innovation on enhancing firm value and reducing risk has been examined. This study estimates ordinary least squares (OLS) regression as in Eq. (2) for H4 to H7. In detail, H4 and H5 explore the association between the positive impact of green innovation on firm valuation and emission performance. Likewise, H4 to H7 investigate the relationship between green innovation and risk mitigation. All regression models incorporate the year and industry fixed effects and cluster at the firm level. Variables and proxies are discussed in the following section.

$$Performance = \beta_{0} + \beta_{1} Innovation + \beta_{2} X + \beta_{3} Z + {\text{FE}} + \varepsilon$$
(2)

where Innovation – corporate green innovation is measured using the green innovation score. Performance represents a vector of the variable of interests influenced by green innovation: volatility, credit risk, firm value, and emission. The rest are the same as Eq. (1). Based on H4– H6, this study expects the coefficient on β1Innovation to be negative (i.e., β1 > 0), and positive for H7.

3.1.3 Subsample test

This study adopts two subsample tests to further explore the relationship between variables in a subset of the data. The first investigation focuses on any difference in the determinate effect on green innovation pre- and post-GFC. Second, this study investigates whether there is any difference in environmentally sensitive industries. This allows this study to examine whether the impact of green innovation on firm performance and risk is stronger for companies within a certain period, industries, and with certain characteristics. By conducting a subsample analysis on these subsets of data, this study aims to find whether the relationship holds across all subgroups or whether there are variations in the strength of the relationship.

3.1.4 Variables and proxies

Proxies of environmental performance.

3.1.4.1 Green innovation

Following the previous literature (i.e., Liao et al., 2021; Meles et al., 2023; Zheng et al., 2022), in this study, the green innovation score is used as the proxy for corporate green innovation as it provides a comprehensive measure of a company’s green innovation performance. Likewise, it provides a standardized and comparable measure of innovation performance across companies, industries, and regions, facilitating cross-sectional and longitudinal analyses.

3.1.4.2 Key variables of interest

This study uses three key variables of interest as determinants of green innovation, and four variables proxying firm risk and value that are influenced by green innovation. For the determinantal factors, CSR-linked compensation incentives (CSR-linked Comp) are the rewards offered to employees for achieving sustainability goals set by the company to motivate employees to work toward socially responsible practices, benefiting both the company and the environment. Second, CEO tenure is the time a person spends in the CEO position. Third, network size refers to networking size refers to the size or extent of a company’s professional network.

Green innovation potentially impacts four variables proxying firm risk and value. The volatility is the annualized standard deviation of an asset’s returns over the past year, used to assess an asset’s risk. Second, credit risk is a measure of the probability that a company will default on its debt obligations, The third variable, Price to book value, represents the firm valuation, which is a valuation ratio that is measured by stock price/book value per share. Lastly, emission (emission reduction score) measures a company’s commitment and effectiveness toward reducing environmental emissions in its production and operational processes.

3.1.4.3 Control variables

Financials: Following the previous literature (Liao et al., 2021; Meles et al., 2023; Zheng et al., 2022), this study controls several firm financial and board character variables. This allows the study to isolate the effect of a specific variable of interest on environmental performance while holding other factors constant and helps to ensure that any observed relationship between the variables is not simply due to chance or the influence of other factors.

Firm size is controlled as it can influence a company’s ability to implement sustainable practices and policies, as larger firms may have greater resources to invest in sustainability initiatives. Leverage and cash holding can impact a company’s ability to finance and invest in sustainable projects, and firms with higher levels of leverage may face greater pressure from stakeholders to manage ESG risks. A company with a high growth rate may face more pressure to prioritize short-term financial performance over long-term ESG goals. Firms with higher levels of tangible assets may face greater ESG risks related to resource depletion or pollution. Finally, ROA is included because it affects a company’s ability to invest in ESG initiatives.

Board characters: Boards play a crucial role in shaping a company’s environmental strategy. Board size and CEO dualism are important to control variables to be considered when examining the determinants of corporate environmental performance. Smaller boards may be more effective in implementing environmental policies, while CEO dualism (when the CEO also serves as the board chair) may hinder accountability and oversight. These variables can provide valuable insights into the role of corporate governance in promoting sustainability and responsible environmental practices.

Year-fixed and Industry-fixed effects: ESG performance may be influenced by factors such as changes in regulation, technological advancements, or shifts in societal values. This study controls for year-fixed effects, which allows researchers to examine the relationship between the variables of interest. Different industries have different levels of ESG risk or opportunity, and companies within the same industry may face similar challenges or opportunities related to ESG issues. Controlling for industry-fixed effects allows this study to examine the relationship between the variables of interest and ESG performance while accounting for the effects of industry.

The Cluster at the firm level: Environmental performance of companies over multiple years may have multiple observations for each company. By controlling for clustered data at the firm level, this study can account for any within-firm correlation in the data. In other words, it ensures that the statistical analysis accurately reflects the fact that multiple observations are made on the same firms and that these observations may be correlated. This helps to improve the accuracy of standard errors and hypothesis tests.

3.2 Sample data

To conduct the investigation, this study constructs a comprehensive dataset that includes S&P 500 firm-level observations over the period 2001–2022 across 24 industries of 11 sectors (GIC standard).Footnote 6 The variables of interest such as green innovation are obtained from the Eikon database.Footnote 7 Following the previous literature (i.e., Tsang et al., 2021), this study collects board-relevant data such as board size, number of independent directors, CEO duality, and board network from the BoardEx database. The financial controls are extracted from WRDS Compust North America. Lastly, the ESG data, board-relevant data, and financial controls are combined to generate a preliminary sample of 9507 US firm-level observations excluding observations missing data.

The S&P 500 is a widely recognized stock market index that includes 500 large-cap companies in the USA.Footnote 8 The analysis of the green innovation of S&P 500 companies offers investors a better understanding of the environmental risks and opportunities associated with their investments and makes more informed investment decisions. The environmental performance of S&P 500 companies has implications for promoting sustainability, mitigating environmental risks, and making informed investment and policy decisions.

4 Empirical results

4.1 Descriptive statistics

Table 1 presents the descriptive statistics of key variables over the period 2001–2022. Panel A shows the statistics for variables related to innovation, corporate social responsibility (CSR), CEO tenure, network size, volatility, credit, price-to-book ratio (PB), and emissions. The average level of innovation is 25.34, with a wide range of values from 0 to 60.86. The median value is also 0, indicating that innovation activities are concentrated in a relatively small number of firms. CSR-linked compensation has an average value of 23.81, with 90% of firms providing compensation up to 88.28. The average CEO tenure is 5.12 years, and the network size is 7.30. The volatility of firms’ stock prices is 1.57, and the average credit rating is 1.69. The PB ratio has an average value of 4.31, with a wide range of values from 1.58 to 8.82. Finally, the average emission level is 2.77, with a range of values from 1.51 to 3.38. Overall, the descriptive statistics provide a snapshot of the variation in these key variables across firms over the sample period.

Table 1 Descriptive statistics of key variables
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Panel B presents the mean of key variables across the 24 Global Industry Classification Standard (GIC) sectors. The automobile sector has a low innovation score but a high CSR compensation and credit score. The banking sector has the highest innovation score and PB ratio, but a low CSR compensation score. Capital goods have a high volatility score and a high number of observations, while commercial and consumer durables have relatively low scores in most variables. Diversified financial, energy, insurance, materials, real estate, and technology hardware have high PB ratios, with the utility sector having the highest. Overall, the sample mean for each variable is within the normal range, and the mean percentage of the total sample for each sector is also presented.

Table 2 presents the Pearson correlation matrix among the key variables of the study. The correlations between explanatory variables are positively related, with statistically significant values at the 0.001 level of confidence. The variables include innovation, CSR-linked compensation, CEO tenure, network size, volatility, credit, price-to-book ratio (PB), and emissions. The results suggest that innovation is correlated with the variables of interest. In addition, CSR-linked compensation, CEO tenure, and network size are positively correlated with each other. Volatility is negatively correlated with all variables except credit, which has a strong negative correlation with all variables, including PB. Finally, emissions have a weak positive correlation with CSR-linked compensation and a negative correlation with all other variables, including PB. The Pearson correlation matrix only offers an overview of the association between variables. For detailed and robust results, this study conducts OLS regression analysis to further explore the causality in the next Sect. 4.2.

Table 2 Pearson correlation matrix
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4.2 Regression analysis

Table 3 presents the results of the OLS regression analysis on the determinants of corporate green innovation. The dependent variable is the level of green innovation, while the independent variables are the three determinantal factors: CSR-linked compensation, CEO tenure, and network size. The models also include financial and board character controls, and year-fixed and industry-fixed effects. The standard errors are heteroscedasticity robust, clustered at the firm level, and the values are winsorized at the 99% level. The regression results reveal that CSR-linked compensation and CEO tenure has a positive and statistically significant effect on green innovation, with coefficients of 0.033 and 0.456 in Model 1 and 0.032 and 0.684 in Model 2, respectively. Likewise, network size also has a positive and significant impact on green innovation in Model 3, with a coefficient of 0.027. Besides, Firm size is also found to be positively related to green innovation in all models, with coefficients ranging from 0.615 to 0.926. In contrast, ROA, leverage, OCF, and tangibility have a negative impact on green innovation, while cash has a positive effect.

Table 3 Determinants of green innovation
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Overall, the results are consistent with the previous literature (Phung et al., 2022; Xu et al., 2022; Cainelli et al., 2012), and support the hypothesis. The regression models explain between 63.6% and 68.1% of the variation in green innovation, with R2 values ranging from 0.636 to 0.681. The results suggest that companies can enhance their green innovation through CSR-linked compensation, CEO tenure, network size, and firm size while paying attention to their financial and board characteristics.

Table 4 presents the results on the impact of corporate green innovation on a variety of firm aspects such as volatility, credit risk, PB ratio, and emission. The results indicate that green innovation is significantly and negatively associated with volatility, credit risk, and PB ratio, indicating that firms that adopt green innovation practices have lower levels of risk and are more financially stable.Footnote 9Furthermore, the results indicate a positive and significant relationship between green innovation and emission (a higher score indicates greater emission practice), suggesting that the adoption of green innovation practices may lead to better emissions control and practice. The table also includes several control variables such as firm size, ROA, leverage, and growth, and board characteristics like board size, CEO duality, and independent board. In aggregate, the findings suggest that green innovation can lead to improved emission performance, increased firm value, and reduced firm risk. Thus, this study highlights the importance of considering innovation factors in corporate decision-making.

Table 4 The effect of green innovation
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4.3 Robust test

4.3.1 Green innovation pre- and post-GFC

Table 5 reports the OLS regression results for green innovation pre- and post-global financial crisis (GFC). Panel A examines the determinants of corporate green innovation before and after the GFC. The dependent variable is corporate green innovation, and the independent variables are CSR-linked compensation, CEO tenure, and network size. The results indicate that CSR-linked compensation has a positive effect on green innovation both pre- and post-GFC, whereas CEO tenure has a negative impact on green innovation post-GFC. Network size has no significant effect on green innovation. The post-GFC results are more significant, Panel B reports the impact of green innovation on various aspects such as volatility, credit risk, valuation, and emission. The results show that green innovation has a positive impact on volatility and credit risk (proxies for firm risk) pre-GFC and on valuation post-GFC. Likewise, it has a more significant effect on firm value and emission post-GFC. The models incorporate financial and board character controls and include year-fixed and industry-fixed effects. For all Models, the Post-GFC results on the effect of green innovation. The implication is that people are more concerned about green finance, climate risk, as well as ESG factor after experiencing the global crisis. are much stronger than in the pre-GFC period.

Table 5 Green innovation pre- and post-GFC
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Table 5 Panel B examines the pre-GFC green innovation on various aspects such as volatility, credit risk, valuation, and emission. The results show that green innovation has a negative and significant impact on all the dependent variables in both pre-and post-GFC periods. Specifically, the pre-GFC period has a negative impact on volatility, credit risk, and valuation, while it has a positive impact on emissions. In contrast, the post-GFC period has a negative impact on all four dependent variables. The t-tests show that all the coefficients are statistically significant, with p-values below 0.01. Overall, the findings suggest that green innovation can have a positive impact on the firm’s financial performance, as it reduces the risk of credit and increases valuation, while also positively impacting the environment.

4.3.2 Environmental sensitive industries

Table 6 analyzes the impact of green innovation on a variety of aspects in environmentally sensitive industries, including energy, industries, materials, and utilities. The results indicate that green innovation has a significant negative effect on volatility and credit risk, with a stronger impact on environmentally sensitive industries compared to other industries. The analysis also reveals that green innovation has a negative impact on the PB ratio in environmentally sensitive industries, implying that investors perceive a lower value of green innovation. Furthermore, green innovation has a significant positive impact on emissions in environmentally sensitive industries, which indicates that firms are using green innovations to improve their green performance. The t-tests indicate that the results are statistically significant, and the baseline models are consistent with the hypothesis. Overall, the study demonstrates that green innovation can create positive outcomes for firms operating in environmentally sensitive industries.

Table 6 Environmentally sensitive industries
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5 Discussion

Taken together, this study interprets these aspects as providing support for the argument about the benefits of green innovation. The risk of environmental misconduct and risk-taking investment are both lower, and agency costs are reduced through enhanced monitoring, and hence as formalized in the first three hypotheses, H1–H3, ceteris paribus the positive association between green innovation and CSR-linked compensation incentive, CEO tenure, network size, and green innovation. In H4 to H7, this study tests whether firms that have greater green innovation have a higher likelihood to outperform these without the schedule in association with green innovation. Additionally, the positive impact of mitigating firm risk should not be neglected, and thereby, the benefits arising from this aspect should be of the same importance.

This study first finds in a manner consistent with H1–H3 that there is a positive association between corporate green innovation and CSR-linked compensation incentives, CEO tenure, network size, and green innovation. Next, to directly test H4 t–H7, this study focuses exclusively on the four variables: volatility, credit risk, firm value, and emission performance. The results indicate that green innovation tends to reduce firm volatility and credit risk, while simultaneously increasing firm value and improving emission performance.

Green innovation is a crucial aspect of sustainable development that aims to reduce environmental negative impacts and create economic benefits for organizations. Green innovation has been found to enhance firms’ financial performance, and brand reputation, and reduce environmental risks (Dorfleitner & Grebler, 2022; Meles et al., 2023). Companies that invest in green innovation can reduce their costs, improve their operational efficiency, and increase their market share. Moreover, green innovation can help organizations comply with regulations, meet customer demand, and contribute to social responsibility (Kluza et al., 2021; Mbanyele et al., 2022; Suto & Takehara, 2022). Therefore, understanding the impact of green innovation on firm performance, value, and risk reduction is crucial for companies that seek to achieve long-term sustainability and success in a rapidly changing business environment.

In addition to the economic benefits of green innovation, it also plays a critical role in reducing environmental risk. Organizations that adopt green innovation are better positioned to address these challengesFootnote 10 by reducing their carbon footprint and promoting sustainable practices (Pan et al., 2021; Zhang et al., 2020). Besides, organizations can also improve their relationships with stakeholders, including customers, investors, and regulators. In aggregate, this research fills a research gap by examining the correlation between corporate green innovation and its positive impacts, exploring the underlying drivers, investigating the mechanisms of its effects on firm performance and risk mitigation, and providing valuable insights for informed decision-making and policy formulation, ultimately contributing to the existing literature on sustainable business practices.

6 Conclusion

In conclusion, this study has contributed to our understanding of the factors influencing and the impact of green innovation in organizations, providing valuable insights to inform decision-making regarding the adoption of sustainable practices. Additionally, this research emphasizes the significance of identifying the determinants that influence green innovation, with factors like CSR-linked compensation, CEO tenure, and network size playing a crucial role in the adoption and effectiveness of green innovation initiatives. By identifying these determinants, organizations can better design and implement green innovation strategies that are more effective and sustainable. Policymakers and regulators can also use this knowledge to create policies and frameworks that promote green innovation and sustainability.

Overall, through more research and understanding of the impact of green innovation and its determinants of that, organizations can develop more sustainable business practices that create economic, environmental, and social benefits for themselves and society. This will ultimately lead to a more sustainable and resilient future for all. Therefore, green innovation and sustainable business practices are not just about economic and environmental benefits. They also involve engaging with a wide range of stakeholders, including customers, employees, communities, and regulators.

Nevertheless, it is important to acknowledge the limitations of this study. To enhance our understanding, future research should investigate contextual factors that shape green innovation, including industry-specific dynamics and policy frameworks, to gain a more comprehensive perspective. Moreover, investigating effective strategies for stakeholder engagement can create sustainable value, and further research in this area would be valuable for organizations seeking to engage stakeholders effectively. Future research can build upon this foundation, driving progress toward a more sustainable and environmentally conscious business landscape.