Environmental innovation approaches and business performance: effects of environmental regulations and resource commitment

Abstract

This study investigates whether environmental regulations and resource commitment (RC) can motivate manufacturers to engage in environmental innovation, thereby improving their business performance. This study proposes a multidimensional framework of ‘Regulation–Innovation–Performance’ as an extension of the Porter Hypothesis, and examines the effect of RC on environmental innovation simultaneously. In this study, environmental regulations are categorised into command-and-control regulations (CCR) and market-based regulations (MBR). Innovative approaches are classified as either exploratory or exploitative environmental innovations. Business performance is divided into measures of effectiveness and efficiency. Further, this study employs the partial least-squares method to analyse 166 sets of sample data from Taiwanese manufacturers to verify the hypotheses. The results reveal that CCR positively affect both exploratory and exploitative environmental innovation approaches. By contrast, MBR have a significant positive effect only on exploratory environmental innovation. This study finds RC to be the main determinant in both environmental innovation approaches. In addition, although exploratory environmental innovation is beneficial in terms of enhancing firm effectiveness, no significant correlation with firm efficiency was observed. Exploitative environmental innovation is positively and significantly associated with firms’ effective and efficient performance.