Ownership structure and eco-innovation: Evidence from Chinese family firms

Abstract

Although eco-innovation is typically less economically appealing due to double externalities, it provides initiators with the socioemotional wealth of green reputation and social capital, which family owners may be willing to preserve through economic concessions. We argue that the separation of voting rights and cash flow rights of family ownership eases the tension between socioemotional wealth and financial wealth for family owners. When family owners have a high level of rights separation, they benefit more from eco-innovation in terms of socioemotional wealth while requiring fewer economic concessions; as a result, they are more likely to invest in eco-innovation. The data on Chinese listed family firms supports our hypothesis, and this relationship is more pronounced in years with more prominent environmental concerns, among larger firms, and in firms with political capital. Our findings highlight the role of ownership structure in influencing the tension between socioemotional wealth and financial wealth, which is a key consideration in family firms' decision-making.