Keeping Up with the Teslas: Technology Spillovers, Firm Capabilities, and Environmental Performance

Abstract

This study explores how technology spillovers –unintentional flows of knowledge stemming from the R&D efforts of technologically close firms– influence a firm’s environmental performance. This issue is critical because research is unclear on i) whether firms may learn from peers’ innovation to become more sustainable, and, if so, ii) which type of firms are more likely to incorporate technology spillovers to raise their environmental performance. On the one hand, firms with greater innovative and financial capabilities can better exploit and recombine peers’ knowledge to enhance their environmental position. On the other hand, firms with weaker capabilities are particularly exposed to environmental shifts that further threaten their position, thus compelling managers to take advantage of spillovers. We address this puzzle by providing evidence of the impact of technology spillovers on different firm-level environmental performance metrics in firms with varying levels of innovative and financial capabilities. Our evidence shows that technology spillovers increase the environmental performance of firms. Yet the effect of technology spillovers is greater on firms with weaker innovative (e.g., low R&D stock, high inertia) and financial (e.g., low liquidity, growth potential) capabilities. We discuss the implications for research on environmental performance and innovation and show how our research informs current debates around technology policy.