Green Patents or Growth? Firms’ Size Dynamics and Environmental Innovations Financial Gains

Abstract

In the context of environmental challenges, modern firms strive for competitive advantage through environmental innovations (EI), yet the impact of EI on firms' performance remains a controversial topic in the scholarly discourse. While some authors highlight a positive influence, numerous studies reveal ambivalence or even negative effects on firms' financial performance. This inconsistency highlights the insufficient exploration of various aspects of the financial implications of EI. Recognizing the moderating role of firms' size dynamics, often overlooked in existing studies, this research investigates how the changing size of firms influences the relationship between EI and financial performance. Analyzing data from 1136 European and North American firms over the period 2012-2019, with and without green patents, the study reveals distinct correlation results between environmental innovation (EI) and financial performance in a specific industry, differing in both the short and long run. Firms experiencing greater growth compared to industry growth tend to implement more EI compared to their counterparts. Growing firms with EI show superior long-term financial performance but experience poorer short-term financial results compared to their counterparts without EI. Notably, as green firms age, the influence of firms' size dynamics on the EI-financial performance relationship diminishes.

Keywords: environmental innovations, financial performance, green patents