How does the financial market influence firms' Green innovation? The role of equity analysts

Abstract

This paper investigates how equity analysts influence firms' green innovation across different financial markets. Using a unique data set consisting of more than 6000 listed firms across 56 different countries, we find that corporate green innovation is positively associated with the number of equity analysts following the firm. We attribute this result to the informational role of analysts, which encourages managers to invest more in eco‐innovation. However, when we divide the full sample into two subsamples based on whether covered firms are incorporated in market‐oriented or bank‐oriented countries, we find that the association between firm's green innovation and analyst coverage becomes negative in the case of market‐oriented financial systems. We argue that potential explanations for this result rely on the differences occurring among market‐oriented and bank‐oriented systems in terms of listed companies' ownership structure and the prevalence of arm's length transaction banking rather than long‐term lender–borrower relationships.

Fiscal Decentralization, Enterprise Digital Transformation and Enterprise Green Innovation—The Case of 11 Years A-Share Listed Companies in China

“…Chai et al [40] indicated that low carbon plans have an inhibitory effect on innovation of heavily polluting enterprises. In addition, Fiorillo et al [41] found that the number of stock analysts tracking companies was positively correlated with enterprise green innovation. Al-Swidi et al [42] found that consumer pressure is positively related to the green innovation of enterprises.…”

Does the presentation reform of R&D expenses in China ease financial constraints in corporate innovation?

“…A firm's innovation has high uncertainty and requires a large number of funds from the initiation to the completion of the project. Although the effects might be heterogeneous across different firms and industries (David & Hall, 2000; Fiorillo et al, 2022), existing studies generally confirmed that a lack of access to liquidity constrained firms' innovation activities (Aghion et al, 2012; Brown et al, 2012; Howell, 2017).…”

Does the famine experience of board chair hamper innovation?

“…Other variables that were controlled in this study include Chair gender, which takes a value of 1 for male board chairs and 0 for female board chairs (Bernile et al, 2017), Chair-CEO duality, which takes a value of 1 for board chairs also serving as CEOs of their firms and 0 otherwise, and Chair tenure, which was measured based on the number of years ever since a board chair was elected to his/her position (Bochkay et al, 2019). Firm-specific attributes were also controlled, including firm size, which was measured using the natural logarithm of total assets (Bernile et al, 2017), Firm age, which was measured by counting the number of years following the establishment of a firm (Wang et al, 2022), Leverage, which was measured by dividing total debt by total assets (Fiorillo et al, 2022), Profitability, which was measured based on return on assets (D. Xu et al, 2021), Tobin's Q, which was computed by dividing the market value of total assets by their book value (Sunder et al, 2017), Tangibility, which was computed by taking the ratio of the net value of a fixed asset to total assets (He & Tian, 2013), Absorbed slack, which was computed by taking the ratio of administrative and selling expenses to sales, Potential slack, which was computed by taking the ratio of total long-term debt to total assets (O′Brien & David, 2014), Board size, which was computed by counting the number of directors in a firm (Campbell et al, 2019), Independent director, which was computed by taking the percentage of independent directors on the board, and market competition, which was computed by adding the squares of the ratio of sales revenue in the industry (Wang et al, 2022). Industry and time effects were also controlled by including industry and year dummies.…”