How to improve the survivability of environmentally innovative firms: The case of Vietnam's SMEs

Abstract

Environmental innovation (EI) is a complicated task with high investment costs and long-lasting administration demands. These challenges discourage firms from implementing EI, while firms that do perform this activity are exposed to a risk of failure and may be forced to leave the market. This paper seeks to show how to improve the survivability of environmentally innovative firms. We used survey data on small and medium-sized enterprises (SMEs) in Vietnam from 2007 to 2015 to examine the effects of EI implementation on firm survival, taking into account different internal capacities, operating in a corrupt environment, and unfair competition. In this paper, the provincial competitiveness index is employed to measure corruption in the economy, based on different dimensions, namely transparency, informal costs, time costs, fair competition, proactive and creative provincial leadership, and fair and effective legal procedures. Firm size and exporting status are employed to capture firms' internal capacities. By employing the semi-parametric Cox proportional hazard model and two parametric specifications, including Weibull and exponential, the results show that only conventional innovation promotes firm longer-term survival, while there is a negative association between EI and the probability of firm survival. We conduct a robustness check using the propensity matching method. We show that the relationship is most evident for firms operating in an economy that features low-quality institutions or unfair competition. Firms’ internal capacities are essential in permitting firms to earn greater benefits from EI implementation. The findings of our study are an essential foundation for economists and policymakers in the design and implementation of processes to assist firms in dealing with environmental issues and ensuring that firms benefit when undertaking EI activities.