The Carbon Dilemma: Intervening Effects of Technological Competition and Open Innovation

Abstract

The relationship between carbon emissions and firms’ performance has long been the subject of debate, but no solid conclusions have yet been reached. This study provides a dynamic view of this relationship and presents a performance paradox derived from carbon emissions with an additional analysis on the roles of both technological competition and open innovation. Based on a sample of 584 Taiwanese high-tech manufacturing firms over six years (2012-2017) with 3,504 firm-year observations, and applying the least square with dummy variable (LSDV) regression model, we find support for our proposed hypotheses. Specifically, we find that carbon emissions present a performance paradox for firms, in that prior profitability performance (e.g., ROA) induces a high level of carbon emission which, in turn, deteriorates subsequent market performance (e.g., Tobin’s Q). We also find that the intensity of technological competition strengthens the positive relationship between prior profitability and carbon emissions, while firms’ engagement in coupled open innovation weakens the negative relationship between carbon emissions and market performance. Our study provide explanations for why firms do not or cannot reduce their carbon emissions while they are profitable, as well as how they can avoid this paradox. We also offer suggestions for theory and practice.