Does negative environmental performance feedback induce substantive green innovation? The moderating roles of external regulations and internal incentive

Abstract

When the environmental performance is below the aspiration, will firms make substantive changes? In order to answer this question, based on the behavioral theory of the firm, this paper examines the impact of negative environmental performance feedback on substantive green innovation (GI) and its influencing mechanism. It is found that the negative environmental performance feedback induces substantive GI, which is positively moderated by external regulations (i.e., government environmental regulation and public environmental concern) and internal incentive (i.e., executive equity incentive). Media pressure and risk preference act as mediators in the above promotion effect. Heterogeneity analysis shows that the above promotion effect as well as the moderating effects of external regulations are more pronounced in private firms, while the moderating effect of internal incentive is more pronounced in state‐owned firms. Furthermore, the above promotion and moderating effects are more pronounced after the ESG rating event of SynTao Green Finance Agency. This paper offers new sights into understanding the motives of substantive GI and policy suggestion for promoting firms to achieve sustainable development.