When Regulations and Money are Not Enough to Spur Green Innovation : The Critical Role of Corporate Governance Mechanisms

Our paper helps answer why stricter environmental regulations, even combined with sufficient financial resources, still fail to yield significant green innovation performance by considering the heterogeneity of corporate governance mechanisms. Building on the institutional theory, resource-based view, and corporate governance literature, we construct a novel theoretical framework to explain how firms’ heterogeneous financial resources and corporate governance mechanisms affect their responses to environmental regulations. Our findings reveal that financial resources positively moderate how environmental regulations spur green innovation, while the positively moderated effect is strengthened by a strong governance structure. The evidence furthers our understanding of the condition under which stricter environmental regulations could be translated into more green innovative outputs. It also has significant practical implications for “going green” in China and possibly in other emerging countries with a similar institutional context where environmental stewardship primarily relies on government-driven environmental regulations