Decision‐making of powerful CEOs on green innovation: The roles of performance feedback and institutional investors

Abstract

This study assesses the effects of CEO power on green innovation and, more importantly, explores how different performance feedback affects this relationship by considering the positive and negative aspects of financial and environmental performance feedback. We further discuss how institutional investors respond to the decision‐making of powerful CEOs on green innovation. By using Chinese manufacturing observations, we find that although powerful CEOs positively promote firms' green innovation, this positive effect does not apply to all conditions. The impacts of CEO power on green innovation are different under the positive and negative aspects of performance feedback, and under financial and environmental performance feedback. Accordingly, heterogeneous institutional investors respond differently to these various situations. Specifically, pressure‐resistant institutional investors serve as ‘supervisors’ under the positive aspects of financial and environmental performance feedback and shift to ‘bystanders’ under the negative aspects of financial and environmental performance feedback. Pressure‐sensitive institutional investors always act as ‘bystanders’ under different performance feedback.