Going Green : An Analysis of Mutual Fund Investment and Green Innovation in the Context of China

This paper investigates whether key capital market players, institutional investors, can facilitate green innovation among firms in which they invest. Leveraging a large data set on Chinese firms’ green innovation, we provide evidence that is consistent with Chinese mutual funds that are committed to green investment increasing their portfolio companies’ green innovation. We also find that the effect of such funds on green innovation is conditional upon a portfolio firm’s ownership status, its governance condition, and its institutional environment. Further analysis reveals that green investment has a stronger impact on green innovation when green investors are highly reputable, actively engage with portfolio firms, and when a woman manages the fund. Finally, we find that when backed by green investment, firms with better green innovation exhibit better future financial and environmental performance. Our results unveil some of the real implications of green investment in tackling imminent environmental issues