Executive compensation incentives, innovation openness and green innovation: evidence from China's heavily polluting enterprises

Abstract

Purpose

A green innovation strategy is an important step for enterprises to balance economic and environmental. As the executors of strategic decisions, the attitude and capabilities of senior managers determine the effectiveness of implementing green innovation. Therefore, this paper aims to explore the relationship between executive compensation incentives and green innovation.

Design/methodology/approach

Based on the data of heavily polluting enterprises listed in China's A-share market from 2015 to 2020, this study constructs an OLS model with fixed effects of time and industry, and uses the mediation three-step method to verify the correlation between executive compensation incentives, innovation openness and green innovation. Meanwhile, the grouping regression was used to test the moderating effect of environmental regulation on executive compensation incentives.

Findings

The empirical results show that executive salary incentives promote green innovation and equity incentives inhibit green innovation; the openness breadth partially mediates the relationship between salary incentives, equity incentives and green innovation, while the openness depth only partially mediates the relationship between equity incentives and green innovation; and environmental regulation positively moderates executive incentives.

Research limitations/implications

Due to sample selection and variable measurement, the study lacks certain generality. Therefore, future research needs to further analyze the internal factors affecting green innovation from multiple dimensions.

Practical implications

This study provides a new evidence for analyzing how executive compensation measures affect green innovation, and further enhances the mediating mechanism of open innovation.

Originality/value

This study has significant theoretical implications for examining the intra-firm factors that affect green innovation.

Citation

Zhao, J., Chankoson, T., Cheng, W. and Pongtornkulpanich, A. (2023), "Executive compensation incentives, innovation openness and green innovation: evidence from China's heavily polluting enterprises", European Journal of Innovation Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/EJIM-01-2023-0064