Executive compensation incentives, innovation openness and green innovation: evidence from China's heavily polluting enterprises

Abstract

PurposeA green innovation strategy is an important step for enterprises to balance economic and environmental. As the executors of strategic decisions, the attitude and capabilities of senior managers determine the effectiveness of implementing green innovation. Therefore, this paper aims to explore the relationship between executive compensation incentives and green innovation.Design/methodology/approachBased on the data of heavily polluting enterprises listed in China's A-share market from 2015 to 2020, this study constructs an OLS model with fixed effects of time and industry, and uses the mediation three-step method to verify the correlation between executive compensation incentives, innovation openness and green innovation. Meanwhile, the grouping regression was used to test the moderating effect of environmental regulation on executive compensation incentives.FindingsThe empirical results show that executive salary incentives promote green innovation and equity incentives inhibit green innovation; the openness breadth partially mediates the relationship between salary incentives, equity incentives and green innovation, while the openness depth only partially mediates the relationship between equity incentives and green innovation; and environmental regulation positively moderates executive incentives.Research limitations/implicationsDue to sample selection and variable measurement, the study lacks certain generality. Therefore, future research needs to further analyze the internal factors affecting green innovation from multiple dimensions.Practical implicationsThis study provides a new evidence for analyzing how executive compensation measures affect green innovation, and further enhances the mediating mechanism of open innovation.Originality/valueThis study has significant theoretical implications for examining the intra-firm factors that affect green innovation.

System Identification of Enterprise Innovation Factor Combinations—A Fuzzy-Set Qualitative Comparative Analysis Method

“…This can reduce the problem of agency. Zhao et al (2023) found that providing compensation incentives to management can increase their willingness to innovate [49]. Atallah et al (2021) found a positive correlation between innovation and incentive measures [50].…”

Can the Top Management Team’s Environmental Attention Promote Corporate Green Innovation?

“…According to the enterprise lifecycle theory (Miller and Friesen, 1984) [15], firms evolve through dynamic growth stages, each impacting TMTEA's role in corporate GI differently. During the growth phase, companies bolster competitiveness through substantial investments, such as R&D, product promotion, and production capacity expansion (Zhao et al, 2023) [31]. Initially, TMTEA's approach to environmental concerns might be limited.…”

“…In the mature stage of a firm's lifecycle, it reaches its maximum scale, employee value, and internal governance efficiency (Zhao et al, 2023) [31]. Fortified by a robust resource base and capabilities, mature enterprises adeptly meet green consumer demands, fostering sustainable development.…”

“…Fortified by a robust resource base and capabilities, mature enterprises adeptly meet green consumer demands, fostering sustainable development. With stable profitability and ample cash flow, directing attention toward the ecological environment enables investment in GI using internal funds (Zhao et al, 2023) [31]. TMTEA steers corporate capital towards green initiatives, supported by accumulated expertise and reduced risks associated with established technology tracks.…”

“…As an organizational resource linked to top managers, executive incentives may mitigate TMT risk aversion, enhancing their environmental attention and influencing GI. The situational attention principle indicates that decision-makers' attention preferences are influenced by external contexts like government stimuli, particularly environmental attention, potentially promoting GI development (Polas et al, 2021;Chen et al, 2022;Zhao et al, 2023) [27,30,31].…”