Green process innovation, green product innovation, leverage, and corporate financial performance; evidence from system GMM

Abstract

Natural resource usage has produced various environmental challenges. Green process innovation has been considered a viable option that can help both industry and society. This study investigates the impact of green process innovation and green product innovation on corporate financial performance. We based our findings on a sample of 280 listed non-financial firms operating in South Asia. Information was gathered from firms' annual and CSR reports from 2012 to 2022. This study's data was analyzed using a two-step dynamic panel system GMM, correlation analysis, multicollinearity diagnostic tests, and descriptive statistics. Corporate financial performance is measured with ROA, ROE and Tobin's Q. Overall findings of the study show that green innovation has a significant positive impact on all measures of financial performance. Investing in the innovation of green products and green process can assist businesses in avoiding environmental concerns and regulatory penalties, while also assisting them in establishing new market prospects and achieving new levels of success with their green products. In addition, developing products that are friendly to the environment is tightly connected to expanding green competencies, promoting a company's green image, and improving the company's financial performance. Particularly useful for policymakers in developing countries, the study's findings can be used to introduce paradigm-shifting legislation and penalties that speed up business adoption of green process innovation.