Institutional Investors and Corporate Environmental Innovation

Abstract

This paper addresses whether institutional investors drive firms' innovation direction toward environmentally friendly technologies. The data pertain to comprehensive environmental patents filed by Chinese publicly-listed firms in the manufacturing and public utility sectors during the 2003-2015 period. We find that institutional investors are associated with higher ratios of environmental patents in total patents for firms in the pollution-intensive sectors than those in the non-pollution-intensive sectors. Institutional investors exert the roles of financial support and corporate governance in pursuit of monitoring firms' long-term sustainable innovation. They further facilitate the information disclosure on corporate social responsibility. Lastly, institutional investors are motivated by financial returns.

Keywords: Institutional Investors; Environmental Innovation; Patent; Corporate Social Responsibility

JEL Classification: G23, G30, M14, O30