Information acquisition or just going through the motions? Institutional investors' site visits and green innovation

Abstract

The importance of green innovation in global sustainable development is increasingly recognized. Literature has documented that enhancing external oversight can improve green innovation performance. However, few studies systematically investigate the relationship between external supervisory behavior and green innovation. This study employs a game‐theoretic model to examine the relationship between institutional investors' site visits (SVs) and green innovation. Using a unique dataset covering SVs from 2012 to 2021, empirical findings reveal that institutional investors' SVs are dramatically favorable to green innovation performance, particularly among stress‐resistant institutional investors. More broadly, SVs by institutional investors with higher shareholdings and stronger reputations exhibit a substantial response to green innovation. Similarly, institutional investors' SVs significantly boost the green innovation of firms with inadequate environmental disclosure. Additional analysis documents that the quality improvement of green innovation significantly increases after institutional investors conduct more than three SVs in a calendar year. This study proposes that policymakers should improve the institutional environment for site visits, and enterprises can strategically involve institutional investors to enhance external monitoring mechanisms. The theoretical and practical implications of this contribute to boosting green innovation capabilities.