Does Green Die in Opportunism? Opportunistic NPE Litigation and Green Corporate Innovation

Abstract

This study analyses the effects of opportunistic non-practicing entity (NPE) litigation activity on green corporate innovation (GCI) strategies. Our findings highlight the detrimental effects of opportunistic litigation behaviour on a firms’ innovation-related decision making. Notably, we find that immediately after being involved in a litigation event, targeted firms prioritise the reduction of GCIs, specifically, climate change mitigating (CCM) technologies. This suggests that firms sacrifice their commitments to long-term sustainability efforts to produce low-risk, less innovative technologies. Additionally, we demonstrate that firms produce green technologies that are of a lower quality and value after being targeted by an opportunistic NPE. We identify causality through the America Invents Act (AIA), which leads to an exogenous increase in opportunistic litigation exposure in the state of Texas. Consistent with our baseline results, we find firms headquartered in Texas to escalate their reduction in green innovation, following the introduction of the Act. Further to our causality testing, we demonstrate that the introduction of various state-level anti-troll laws have an insignificant effect in reducing opportunistic NPE litigation risk. We illustrate that after the introduction of these laws, firms increase their non-GCI efforts, however, make no changes to their GCI production levels. Finally, we identify the presence of various underlying mechanisms which drive our results. Notably, we find managerial short-termism, climate beliefs, and corporate culture to significantly influence the GCI-related reaction of firms in the face of opportunistic behaviour.

Keywords: Climate finance, Green corporate innovation, Opportunistic NPE litigation, Climate change mitigation

JEL Classification: G30, G32, K11, O31, O34, Q50