Linking levels of green innovation with profitability under environmental uncertainty: An empirical study

Abstract

This study analyzes the role of environmental uncertainty for the relationship between the level of green innovation and profitability and in doing so contributes towards answering the question when green product and process innovation pays off in three ways: First, as a novelty we take into account the level of innovations. Second, we address how environmental uncertainty impacts on the relationship between green innovation levels and profitability. Third, as is rarely done, we measure the financial performance for each of the 4 years after an innovation, thus providing insights into how effects evolve over time. By combining unique survey and publicly available accounting data for German manufacturing firms and applying advanced instrumental variable techniques, we find that uncertainty positively moderates the effect of the level of green process innovation on profitability. Furthermore, the level of green product innovation positively affects profitability in the longer term, but negatively when a new product is introduced.