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Green innovation and financial performance: A study on Italian firms

Efi Vasileiou
GREDEG, University of Côte d’Azur, Nice, France
Université Côte d’Azur
GREDEG (Groupe de Recherche en Droit, Economie, Gestion)
250 Rue Albert Einstein, 06560 Valbonne, France
And
CITY College, University of York Europe Campus
3 Leontos Sofou st., 54626, Thessaloniki, Greece
Tel: +30 6946030235
email: [email protected]

Nikolaos Georgantzis
Burgundy School of Business
School of Wine & Spirits Business
29 Rue Sambin
21000 Dijon
France
Tel: +33612248752
email: [email protected]

Giuseppe Attanasi
GREDEG, University of Côte d’Azur, Nice, France
Université Côte d’Azur
GREDEG (Groupe de Recherche en Droit, Economie, Gestion)
250 Rue Albert Einstein, 06560 Valbonne, FRANCE
Tel: +33 (0)6 59 20 01 32
email: [email protected]

Patrick Llerena
BETA (Bureau d'Economie Théorique et Appliquée), UMR Université de Strasbourg, France
University of Strasbourg
Faculty of Economics and Management
BETA (Bureau d'Economie Théorique et Appliquée)
UMR Université de Strasbourg - CNRS n°7522
61, avenue de la Forêt Noire
67 085 STRASBOURG France
tel: +33 (0)3 68 85 21 84
fax: +33 (0)3 68 85 20 70
email: [email protected]

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 Green innovation and financial performance: A study on Italian firms

Abstract

As the environmental agenda gains momentum all over the world, enterprises face the challenge

of combining economic and environmental goals. An obvious, recurrent, and yet not fully

answered question is whether, and under which circumstances, an improvement in a firm’s

environmental performance leads to higher profits. Looking at innovation data, the present study,

addresses the question whether Environmental Innovation (EI) is synergic with other types of

innovation. To this aim, we separately consider the competitive gains from efficiency increases

and cost savings due to different types of environmental innovations (EI) affecting the supply and

the demand sides of a firm’s activity. Using the Italian CIS dataset (2006-2008), we identify

synergic interactions between EI and some but not all other types of innovation.

Keywords: Environmental Innovation, Product Innovation, Process Innovation, Organisational

Innovation, Marketing Innovation, Financial Performance, Synergies

1
 1. Introduction

Firms all over the world increasingly include improvements in their environmental performance

among their objectives. This implies a series of changes affecting the whole supply chain, from

production to distribution, and even changes in the firm’s financial and organizational structure.

However, the financial effects of environmental innovation (EI) strategies are not fully

understood. In fact, beyond any direct effects of EI on firm profitability, other indirect effects

should be considered, accounting for synergies or negative interaction effects between EI and

other types of innovation. The present study addresses these direct and indirect effects of EI on a

firm’s financial performance, focusing on a specific type of indirect effects due to possible

complementarities between EI and other types of innovation, like marketing and organizational

innovation. For example, organizational changes such as new methods for assigning

responsibilities, novel methods of organizing relations and partnerships can generate a pertinent

environmentally friendly culture, which in turn could stimulate EI. In addition, EI may require

the development of marketing innovations to ensure the successful commercialization of green

products and services.

Generally speaking, firms’ environmental and socially responsible activities and behaviors may

yield reputational advantages (Ambec and Lanoie, 2008; Margolis and Walsh, 2003) and increase

corporate profits (Porter and Kramer, 2002, 2006). Thus, the decision of a firm to invest in

environmental innovation may be attributed to purely profit-oriented motivations (“Porter

hypothesis”, as in Porter and van der Linde, 1995). For example, firms may adopt pro-

environmental practices, driven by a combination of technology dynamics, efficiency-related

competitive advantages but also customer pressure (Díaz-García et al., 2015). Some further
2
sources of benefits due to EI relate to advantages achieved by voluntary disclosure of

environmental performance actions (Khanna, 2001), increasing a firm’s market value, improving

employee commitment and productivity (Dogl and Holtbrügge, 2014), signaling organizational

and managerial capabilities (Aschehoug et al., 2012), attracting financial investors (Doh et al.,

2010), thus improving future economic performance (Song et al., 2017). Regarding demand-pull

effects, Horbach (2008), found that consumers’ demand, public pressure, and societal trends are

crucial motivators of EI. Finally, according to stakeholder theory (Donaldson and Preston, 1995;

Freeman, 1984), environmental innovation may respond to stakeholder preferences and

expectations (Reinhardt, 1999) or environmental regulation (Tsireme et al., 2012). Following this

last type of extrinsic pressures for EI, the possibility of unprofitable EI cannot be ruled out. That

is, while EI maybe synergic to some types of innovation, it may yield unintended, albeit

temporary, negative effects on a firm’s financial performance. For example, implementing new

pro-environmental practices could require costly R&D, changes in production technologies,

promotion of new products or services, adoption of new business models and practices,

modifications in supply chain management and education to employees (Kok et al., 2013).

Regarding the effects of EI on firms’ financial performance, there has been a considerable

number of studies, yielding mixed results (Porter, 1991; Jaggi and Freedman, 1992; Orlitzky et

al., 2003; Song et al., 2017; Aldieri et al., 2020, among others). According to Horváthová (2010),

55% of the relevant studies find a positive relationship, 15% find a negative one and 30% a non-

significant or a non-linear relationship. In fact, as observed by Lin and Zheng (2016), a “win-win

situation” may arise when environmental and economic performance can be jointly enhanced,

provided that firms identify the conditions under which the mix of economic, organizational and

environmental innovations drive this relation to be positive. To achieve this win-win situation,
3
firms must understand that “green profitability” depends on a combination of other innovation

strategies which allow them to capitalize on green efforts (Ambec and Lanoie, 2008). Profitable

green innovation requires suitable capabilities and internal and external resources (Lampikoski et

al., 2014) which encompass the development of green products, the optimization of the process of

production, the development of environmental-friendly management, and service provision that

meets the needs of green consumers (Tseng et al., 2013). Thus, the achievement of green

objectives requires continuous investment in the strategic domains and persistent effort in order

to avoid any negative interactions affecting a firm’s financial performance (Zhang et al., 2020;

Roper and Tapinos, 2016).

Given the heterogeneity of results obtained in the literature, the present study, addresses the

question “when does it pay to be green?’’ paying special attention to the coexistence and

interaction among different types of innovation within the same firm. Specifically, the study

identifies sufficient conditions for green investment strategies, moderated by investment in other

innovation domains, to positively affect firm performance.

Several studies have focused on green process (Ghisetti and Rennings, 2014; Tseng et al., 2013)

and product (Driessen et al., 2013; Albino et al., 2009) innovation, as well as green marketing

and organizational innovation (Testa et al., 2011; Przychodzen et al., 2016; Tang et al., 2018;

Medrano et al., 2020). However, none of these studies has examined possible interaction effects

among different innovation domains as determinants of EI profitability. Furthermore, while 27%

of the studies on green innovation focus on firm performance, none of them has examined the

moderating role of organization and marketing innovation in the financial profitability of EI

(Oduro et al., 2021).

4
The existence of possible synergies among different forms of innovation was first mentioned by

Schumpeter (1934). Recent studies (Hullova et al, 2016; Ballot et al, 2015; Battisti and

Stoneman, 2010) found that technological innovations (product and process) are synergic to non-

technological innovations (mainly organizational innovations). For example, Azar and Ciabuschi

(2017) proposed that organizational innovation is a prerequisite for any form of innovations

within the context of exporting activities. Damanpour and Evan (1984) suggested that a change in

a firm’s technological system entails transformations in the organizational system (e.g., policies,

new human resources management, etc.). In previous literature this was termed as “absorptive

capacity” (Cohen and Levithal, 1990). Firms’ available stock of technological innovations and

competencies determine their capacity to develop environmental technologies. For example,

product innovations emphasize effectiveness and highlight differentiation, involving considerable

improvements in components and materials, user friendliness and other functional product and

service characteristics (Kahn, 2018). Analogously, EI encompasses new enhanced products or

services, which decrease the release of harmful substances. Process innovation gives emphasis to

efficiency and often concentrates on cost savings (Wong et al, 2008), and in the same way EI

includes innovation in technologies that are also involved in energy-saving.

In order to open “the black box” of EI efficiency, we separately consider different types of EI

associated with innovation domains which could be considered to be immediately profitable due

to efficiency increases and cost savings (Ghisetti and Rennings, 2014), whereas other innovations

may be less profitable, since they are costly and only undertaken in order to satisfy different

extrinsic motivations. Using a regression analysis approach, and the Italian Community

Innovation Survey (CIS) 2006-2008 dataset, we consider EI affecting four domains (product,
5
process, organizational and marketing) of firm performance, considering both types of forces, the

‘technological supply push’ and the ‘demand push’ (Zubeltzu-Jaka et al., 2018). The value of

disentangling the EI effects by type of innovation is particularly high, as it has immediate

managerial implications (Borghesi et al., 2015; Mazzanti and Zoboli, 2006), like which types of

innovation combinations should be expected to yield positive financial effects. In fact, there are

several examples in which managers may wrongly assume that innovative organizational

practices such as coordinating activities, motivating employees, setting directions, etc. do not

have direct environmental impacts, thus, focusing more on eco-product and eco-process

innovation (Del Brio and Junquera, 2003). In such cases, it could be possible that eco-innovation

exclusively focused on technological domains without introducing the necessary eco-

organizational procedures could forego potential extra gains. Thus, technological eco-innovations

per se may not be sufficient for a firm to achieve competitiveness and a better financial

performance. Benefits that could be also translated into financial ones may include, a value-added

firm image, the access to new markets or consumers and improved worker motivation and

commitment.

In their recent study, Medrano and colleagues (2020) proposed that “managers need to rethink

and transform traditional marketing practices (marketing innovation) according to a holistic,

long-term management vision” (p.8) identifying thus a rather weak relationship between

marketing innovations and EI. Managers should recognize the significance of environmental

restrictions and consumer beliefs when they engage in marketing innovation and try to enhance

the benefits that eco-marketing innovation activities could provide. For example, the “innovation

radar” notion (Sawhney et al., 2006) offers a theoretical background that firms could examine to

enhance the contributing value of marketing innovations. In relation to the firms’ customers, it is
6
important to recognize new consumer niches related to environmental positioning; in relation to

the firms’ offerings, firms can move from paper to digital, find new ways to reduce unnecessary

consumption of plastic bags, and invest in new recycling systems. Finally, in relation to the

firms’ distribution policy, they could relocate their production and distribution services to meet

further environmental objectives.

This research, especially in a country with a poor EI record like Italy (Fankhauser et al., 2013),

could be of significant value. Italy is a large EU national economy. In fact, it is the 3rd in size of

the entire EU. Furthermore, Italy has a strong manufacturing sector which heavily depends on

imported raw materials (EIO, 2019). Thus, it is the one that can benefit the most from input

savings and other types of innovation, like EI. Most interestingly for our study, Italy has not

adopted nation-wide policies forcing companies to invest in EI. Thus, EI is the result of voluntary

firm strategies rather than an economy-wide norm imposed by regulation. Therefore, unlike

countries which have homogeneous adopted norms in favor of EI, Italy can be used as a natural

experiment providing evidence on both adopters and non-adopters of EI.

The remainder of the paper is organized as follows: Section 2 reviews the theoretical background

and empirical studies on EI and financial performance and our conceptual model; Section 3

discusses the data used in this study and the estimation methodology; Section 4 presents the

results and their interpretation; and Section 5 concludes.

7
 2. Theoretical background

Environmental Innovation: definition and measurement

Environmental, Green Innovation or Eco-innovation1 refers to an innovation which involves a

full-life cycle treatment of input and output factors that decreases the negative effect of a firm’s

activities on the environment. Diaz-Garcia et al. (2015), in their literature review, incorporate all

the different notions and terminology used by scholars according to different environmental

effects and the motivation of the relevant actors. These terms usually include only economic and

ecological aspects and not the social ones (Schiederig et al., 2012). A relevant definition is

proposed by the Eco-Innovation Observatory report (2013), commissioned by the European

Commission, defining environmental innovations (EI) as:

“The introduction of any new or significantly improved product (good or service), process,

organisational change or marketing solution that reduces the use of natural resources (including

materials, energy, water and land) and decreases the release of harmful substances across the

whole life-cycle (EIO, 2013)”. The above definition links among them a varied set of innovations,

since every process or product that is less polluting represents a different environmental

innovation. Accordingly, in this study we follow the mixed definition of EI in line with Arundel

and Kemp (2009), including technological and non-technological innovations, as well as green

organizational changes and marketing with environmental benefits.

Different quantitative and qualitative criteria have been used to measure environmental

innovation output. Quantitative measures usually include information about the environmental

patents (Kemp, 2010), information on the volume of waste generated, the amount of air emissions

1These three terms are used in the existing literature on eco-innovations as interchangeable and identical (Díaz-
García et al., 2015).

8
such as CO2, air and water pollution, energy use, noise, waste and soil contamination, or

improvements in recycling. A further distinction is made between end-of-pipe technologies and

cleaner production (Ghisetti and Rennings, 2014). Some studies use process- rather than output-

related measures (Misani and Pogutz, 2015). However, as indicated by Delmas et al. (2013), such

process-related measures do not really capture environmental performance due to complications

in their implementation.

On the other hand, qualitative measures include subjective information mostly based on ratings.

The meta-analysis of Horváthová (2010) finds that the measurement method significantly affects

the relationship between financial and environmental performance concluding that studies

employing qualitative measures of EI are more likely to find a positive effect. As stated by

Albrizio et al. (2017), a reason for this could be found in that quantitative measures, such as

patents, are not representative of EI, since only 1% of firms present patenting activities and this is

usually not reflected on a firm’s financial performance. Additionally, quantitative measures tend

not to consider the case of innovations whose possible effects are expected to appear over a

longer period (Nicolli and Mazzanti, 2011).

This study considers various types of environmental outcomes (nine environmental benefits)

which may be obtained within the firm or in the consumption stage by the end user. According to

the stakeholder theory (Freeman, 1984), these measures, could satisfy an acceptable number of

stakeholders’ interest and thus affect firm’s decision about the EI strategies (Wagner, 2010).

The link between environmental and economic performance

9
The theoretical and empirical debate on whether it pays or not to be green exists since long time

ago. According to the neoclassical theory, environmental innovations which are mainly tied to

environmental regulation lead to cost increases (Palmer et al., 1995; Walley and Whitehead,

1994). On the other hand, positive effects may also exist, (Horváthová, 2010), which following

Porter and van der Linde (1995) may offset the aforementioned increased costs. The inconclusive

theoretical debate is also reflected on a series of studies, some of which find a positive

relationship (King and Lenox, 2001; Konar and Cohen, 2001; Russo and Fouts, 1997; Wagner,

2010; Song et al., 2017; Aldieri et al., 2020), a negative (Cordeiro and Sarkis, 1997; Jaggi and

Freedman, 1992; Stanwick and Stanwick, 1998; Gonenc and Scholtens, 2017; Rassier and

Earnhart, 2010) a non-significant (Palmer et al., 1995; Walley and Whitehead, 1994) and even a

non-linear one (Margolis and Walsh, 2003; Wagner, 2010). Specifically, Lankoski, (2000), and

Wagner (2010) argue that there is an inverse U-shaped relationship between firm performance

and EI. Similarly, Barnett and Salomon (2012) found a U-shaped relationship between corporate

social performance and financial performance, explaining that, initially, environment activities

are costly for firms but, after a certain point, these costs are compensated. Misani and Pogutz

(2015) found an inverse U-shape between carbon performance and financial performance.

The studies which found a positive relationship offer a broad spectrum of explanations, such as

the increased demand for ‘green’ firms’ products due to their product differentiation from ‘non

green’ rivals and the expansion of the market (García-Gallego and Georgantzis, 2009), the

improvement of the corporate competitiveness due to a better corporate image (Testa et al.,

2011). Additional gains to the firm may be due to a reduction in the risk of upcoming

environmental regulations/taxes and lawsuits. Further cost reductions may be achieved thanks to

pollution-reducing measures or to the increased efficiency in the use of resources and

10
transforming waste into a valuable resource (Porter and van der Linde, 1995; Reinhardt, 1999;

Dangelico et al., 2017).

However, Fisher-Vanden and Thorburn (2011) point out that the positive relationship is also

observed in studies where environmental innovation is tied to regulations, emphasizing the role

of institutional motivators (Reinhardt, 1998; Darnall, et al., 2008; Tsireme et al., 2012, among

others). On the other hand, Hart (1995), grounded on the Natural-Resource-Based View (RBV),

argues that there are many competitive advantages in a pro-active environmental behavior,

yielding positive economic returns. According to this theory, a positive financial effect of EI

could be due to the development of unique “bundles” of resources and capabilities within the firm

(Wernerfelt, 1984; Barney, 1991; Hart and Dowell, 2011). Thus, whether a firm finds it profitable

to invest in EI depends on its capability to efficiently associate its internal skills (i.e. physical,

financial, labor and organizational resources) with environmental objectives. These

environmental initiatives could mitigate future regulatory costs and improve the effectiveness of

the production processes (Ambec and Lanoie, 2008). Lucas and Noordewier (2016) argue that

external features like industry dirtiness and industry pollution enhance the positive effect of

environmental practices on financial performance. A recent report revealed that 153 surveyed

companies (representing more than 80% of the surveyed sample) reported increases in sales and

reduction in manufacturing cost (Pure Strategies Report, 2017). However, managers usually

underestimate the returns of EI due to difficulties in collecting the necessary information

(Berchicci and King, 2007; King and Lenox, 2002), and recognizing the cost saving potential

(Horbach, 2008), leading them to sub-optimal levels of investment.

11
These results indicate the need for considering the effects of EI in all its stages, from the

development of a green product, through the production process to the final stage of

consumption. To achieve a win-win situation in which EI enhances performance, firms need to

evaluate their benefits from different types of EI, accounting for possible losses due to negative

interaction with other innovation domains in order to minimize the financial failure of green

innovations.

A conceptual model

Fig.1 represents our conceptual model with its different features, under the assumption that each

feature has a different impact on EI and on the corresponding firm outcome. Focusing on a firm’s

internal features, we assume that firms invest differently in different innovation domains

(product, process, organizational and marketing) due to internal or external constraints and

interests and that this moderates to a certain extent the relationship between EI and firm

performance. Product-EI refers to the improvement in products’ technical modules and

ingredients (Pujari, 2006) and it aims at reducing environmental impacts from product use and

disposal (Ottman et al., 2006; Christensen, 2011; Wong et al., 2012). Eco-process innovation

refers to the introduction or the improvement of new environmental elements that can be additive

or integrated into the production process (Rennings, 2000). The results of the EI-process are to

further reduce unit costs, creation of green products and reduction of environmental impacts

(Negny et al., 2012). Scott (2003) found for US manufacturing firms that around 24% of their

R&D activities are dedicated to these two previous domains (eco-product and process-EI). On the

other hand, non-technological innovations such as EI in organization refers to a more holistic

view in the business procedure related to administrative efforts which may include the re-

12
organisation of management, routines, or systems. Their impacts on the environment are indirect

and are related to the reduction of administrative and transaction costs and costs of suppliers,

increased job satisfaction and hence improvement of workers’ productivity compared to EI in the

process domain which directly affects operation activities (Cheng et al., 2014). Empirical studies

showed that organizational innovations and environmental management systems are synergic

(Rehfeld et al., 2007; Wagner, 2007). Lastly, EI in marketing refers to the development and

promotion of new green products. This includes the adaptation of price to account for the cost of

meeting environmental regulations, a more decentralized production and enhanced use of online

sales. It also refers to product labeling and to sustainable promotional efforts (Medrano et al.,

2020). Research has usually neglected the role of EI in marketing (Driessen et al., 2013) probably

because they overestimate the role of EI on the other three domains (process, product, and

organization). However, through EI marketing strategies, which act as complements of other

technological environmental innovations, firms could improve their image and reputation and

thus increase the consumers’ willingness to pay for their products or services.

Few studies have looked at the profitability of EI by domain. For example, Lin and Chen (2007)

found that green organizational innovation is linked to improved business performance. On the

other hand, Driessen et al. (2013) found that new green product development (NPD) affects

negatively firms’ financial performance. Ghisetti and Rennings (2014), using the German

Mannheim Innovation Panel (2009-2011), focus on green process innovation. They make a

distinction between green innovations which are integrated into the production process (such as

the reduction of material and energy use in the production process) and green innovations which

aim at reducing the negative externalities of the final stage of the production process (for

example, the end-of-pipe technologies). They conclude that green innovations in the short run
13
which lead to a reduction in the use of resources may be profitable for the firm, whereas green

innovations which reduce externalities, such as harmful materials and air, water, noise, and soil

pollution are costly and thus less profitable or unprofitable. Similarly, Doran and Ryan (2016)

found that two out of nine dimensions of green process innovation positively impact firm

performance. Regarding the relationship between EI in the marketing domain and firm

performance, the empirical results are rare. The literature assumes that firms’ environmental

orientation and marketing innovation are conflicted concepts (Kumar et al., 2013). Overall, the

relevant literature indicates that each EI domain has a different impact on firm’s financial

performance, leading to the main working hypothesis that EI has an impact on financial

performance and that this impact is moderated by innovation in various other domains.

14
 Fig.1. Conceptual model

Whether the synergies among innovation domains can be identified or have a specific effect on

firm performance could also depend on the different environmental benefits and on how different

receptors within the firm or in external environments are affected. Iwata and Okada (2011) found

that each environmental activity has different characteristics, appealing to different stakeholders.

For example, there are some sectors such as motor vehicles whose environmental benefits

concern mainly the consumption stage and some sectors such as pulp, paper and paperboard

whose environmental damage is rather specific to the production process (Fankhauser et al.,

2013). Thus, different drivers affect different types of EI, some of which could be considered as

profitable due to efficiency gains, cost savings, networking activities and increase of market share

(Ghisetti and Rennings, 2014) or as non-profitable since they can only be realized in order to

satisfy various stakeholders. For the above reason, we make a distinction between environmental

benefits generated within the firm including, among others, equipment upgrades, resource

commitment and environmental considerations (Horbach, 2008) from benefits perceived by the

end user (Rehfeld et al., 2007). Thus, the main working hypotheses discussed above lead to a

number of research questions and hypotheses (see Fig.1).

From the synergy/interaction effects hypothesized by the conceptual model in Figure 1,

interaction between EI and other innovation domains are expected to play a role in the

profitability of EI. Specifically, EI in products and processes will render the product more

attractive to the consumer and the production process more efficient. Thus, the interaction

between EI and product or process innovation on profitability should be expected to be positive.

Also, the reorganization of the firm in a way which accommodates EI may lead to a more suitable
15
organizational structure for the benefits of EI to be realized. Finally, marketing efforts may

efficiently promote the firm’s pro-environmental image, although this may require high costs,

whose benefits may take too long to become a factor improving the firm’s overall financial

performance. Thus, in a synthetic form, this leads to the following research questions:

Research Question 1: The impact of EI on financial performance is moderated by the

coexistence of EI and innovation in various other domains.

Specifically, this research question can be broken down into four hypotheses, each one

concerning the interaction effect of each innovation domain with EI:

H1: The interaction between EI and product innovation positively affects the profitability of EI.

H2: The interaction between EI and process innovation positively affects the profitability of EI.

H3: The interaction between EI and organizational innovation positively affects the profitability

of EI.

H4: The interaction between EI and marketing innovation positively affects the profitability of

EI.

Furthermore, given the distinction between supply- and demand-related drivers of EI, two

secondary research questions emerge:

Research Question 2: The impact of EI on financial performance has a supply-related

component.

Research Question 3: The impact of EI on financial performance has a demand-related

component.
16
 3. Econometric analysis

3.1 Data and measures

We examine the relationship between EI and firm performance using the Italian Community

Innovation Survey (CIS) 2006-2008 dataset sampling Italian firms. This survey which is carried

out every two years by the Italian national statistical institute (ISTAT) contains information about

firms’ innovation strategies. However, the only wave which includes information on

environmental innovation is the 5th CIS referring to the years 2006-2008. This dataset includes

only firms with 10 employees or more, starting with a sample of 19,227 firms, which are reduced

here to around 14,430 firms due to missing responses on the EI variables.

Aligned with previous literature (Cormier et al., 1993; Hart and Ahuja 1996; Russi and Fouts,

1997; Konar and Cohen, 2001), we define our dependent variable using firms’ annual turnover as

a profitability measure. In fact, we use the average annual turnover in years 2006 and 2008, to

smooth out year-on-year fluctuations and minimize the simultaneity problem that may arise in a

cross section setting like that of the present dataset2. In any case, as stated by Hart and Ahuja

(1996) the effect of EI on financial performance may be observed with a lag of two years. A

logarithmic transformation was applied to avoid skewness.

Environmental innovation variables

The definition used in CIS 2006-2008 is in line with the OECD definition (Oslo manual, 2005)

which is referring as “the introduction of a new or significantly improved product (good or

2 Note that this is the only variable for which two years are available. For the other relevant variables we only dispose one
observation per firm for the period 2006-2008.

17
service), process, method of organization or marketing, that generates an environmental benefit,

compared to existing solutions”. Our EI output variables reflect both the environmental benefits

from impacts through firms’ operations (e.g., cleaner technologies) and the output variables (e.g.,

reduced CO2). Previous studies (Cainelli et al., 2020) also covered part of the environmental

innovation output variables available in this CIS dataset. However, since their focus was on

resource efficiency-oriented EI, they concentrate on those that exclusively affect the use of

materials, waste and recycling. Here, we include all the available EI variables and we further

distinguish between EI within firms (EIF) related by the supply-side forces and EI with benefits

to the end-user (EIC) related by the demand-side forces. We consider “environmental benefits” as

a continuous rather than a dichotomous variable, since as observed by Driessen et al. (2013) the

green procedure or “greenness” comprises different “shades of green”.

More specifically, the EIF is a cumulative index of 6 different environmental dimensions, taking

values from 0 to 6. It is constructed by adding up 6 dummy variables, depending on the

respondent’s number of affirmative responses to the following statements: “The firm has

introduced an improved product”; “The firm has changed its process, organizational method or

marketing method, yielding environmental benefits such as reduction of material and/or energy

used per unit of output, and/or reduction of CO2 ‘footprint’ (total CO2 production)”; “The firm

has made changes leading to the replacement of materials with less polluting or hazardous

substitutes”; “The firm has made changes leading to a reduction of soil, water, noise or air

pollution”, “The firm has made changes leading to waste recycling”; and “The firm has made

changes leading to water or materials recycling”. Cronbach’s alpha for the sample is 0.82.

18
The EIC is created as a cumulative index of 3 different variables. It takes values from 0 to 3. It

represents the environmental benefits from after sales use of a good or service by the end-user

such as the “reduction of energy” use and/or, reduction of air, soil or noise pollution and/or

improvement of recycling of product after use. Cronbach’s alpha for the sample is 0.78. Finally,

the integrated EI contains all the above environmental benefits (Cronbach a=0.89).

Table 1 reports descriptive statistics of the innovations with environmental benefits. As shown in

the table, 23.8 % of the sample introduced an innovation with recycled waste, water, or material

benefits. Moreover, 22.5% of the firms reduced soil, water or materials in their production. Only

10.2% /13.7% of the firms introduced an innovation which reduced material/energy per unit of

output indicating that the cost savings, particularly caused by material and energy savings, are

limited. In total, one third of our sample (34.7%) introduced a product, process, organizational or

marketing innovation with environmental benefits. Regarding environmental benefits from the

after sales use of a good or service by the end user, firms introduce innovations equally in the

three environmental dimensions by an average amount of 22%.

Regarding the innovation domains, four dichotomous explanatory variables have been

constructed. Product innovation (PI) takes value one (else 0) when the firm introduces a new or

significantly improved good or service, user friendliness, components, or sub-systems during the

three years 2006 to 2008. The process innovation (PCSI) variable takes value one (else 0), when

the firm introduces at least one of the following process innovations: a) New or significantly

improved methods of manufacturing or producing goods or service, b) New or significantly

improved logistics, delivery or distribution methods for the inputs, goods or service, c) New or

19
significantly improved supporting activities for firm’s processes, such as maintenance systems or

operations for purchasing, accounting, or computing.

The organizational innovation variable (OI) takes value one (else 0) when the firm introduces at

least one of the following organizational innovations: a) New business practices for organizing

procedures (i.e. supply chain management, business re-engineering, knowledge management,

lean production, quality management, etc.), b) New methods of organizing work responsibilities

and decision making (i.e. first use of a new system of employee responsibilities, team work,

decentralization, integration or de-integration of departments, education/training systems, etc., c)

New methods of organizing external relations with other firms or public institutions (i.e. first use

of alliances, partnerships, outsourcing or sub-contracting, etc.).

Table 1: Descriptive statistics of the Environmental and Innovation domain Variables

EI variables Average Min -Max
(Std Dev)
Total Environmental benefits EI 1.59 (2.48) 0-9
Reduced material use per unit of output 0.102 (0.303) 0-1
Reduced energy use per unit of output 0.137 (0.344) 0-1
Reduced CO2 “footprint’ by your enterprise 0.124 (0.330) 0-1
Replaced materials with less polluting or hazardous substitutes 0.151 (0.358) 0-1
Reduced soil, water, noise, or air pollution 0.225 (0.417) 0-1
Recycled waste, water, or materials 0.238 (0.426) 0-1
Environmental benefits from the production of goods or services 0.949 (1.586) 0-6
within your enterprise (EIF)
Reduced energy use 0.227 (0.418) 0-1
Reduced air, water, soil or noise pollution 0.226 (0.419) 0-1
Improved recycling of product after use 0.215 (0.411) 0-1
Environmental benefits from the after sales use of a good or 0.654 (1.03) 0-3
service by the end user (EIC)
Innovation domain Variables
Product Innovation (PI) 0.277 (0.447) 0-1

20
Process Innovation (PCSI) 0.310 (0.462) 0-1
Organizational Innovation (OI) 0.344 (0.475) 0-1
Marketing Innovation (MI) 0.286 (0.452) 0-1
Exports in European Union (EU), EFTA, or EU candidate countries 0.337 (0.472) 0-1
Exports in other countries 0.227 (0.419) 0-1
Firm sell nationally 0.609 (0.487) 0-1
Firm sell locally 0.921 (0.033) 0-1
Turnover (mean) in thousands euros 47,904 (348,287) 62-
12,396,447

Finally, the marketing innovation (MI) dummy takes the value one (else 0), when the firm

introduces at least one of the following: a) Significant changes to the aesthetic design or

packaging of a good or service, b) New media or techniques for product promotion, c) New

methods for product placement or sales channels and d) New methods of pricing goods or

services. Thus, this variable includes the four elements of the marketing mix model (Coviello et

al., 2000). Table 1 shows the distribution of innovations across the different domains. The

introduction of a new innovative product concerns 27.7% of firms, while 31.1% are involved in

process innovation. Firms were mostly involved in organizational innovation with a percentage of

34.4% and finally 28.6% of firms invested in marketing innovation.

Table 2: Crosstabulation among EI and innovation domain

Innovation domain Total EI Environmental Total environmental
(if yes) benefits from the benefits from the
production of goods or after sales use of a
services within your good or service by
enterprise (EIF) the end user (EIC)
Product Innovation 55.9% 51% 49.1%
Process Innovation 57.2% 52.9% 50.1%
Organizational Innovation 55.8% 50.1% 48.9%
Marketing Innovation 54.9% 49.2% 47.8%

21
Table 2 shows that among firms which innovate in the product domain 55.9% have

environmental benefits. Among those innovating in processes, 57.2% report environmental

benefits. The percentage is 55.8% for those innovating in the organizational domain and 54.9%

for those innovating in the marketing domain. Thus, we see that more than half of firms

innovating in each domain have some environmental benefits.

In order to estimate synergies among innovation domains and EI, interaction terms are created

(Integrated EI X 4 Innovation Domains; EIF X Innovation Domains; EIC X Innovation

Domains).

Since each sector is characterized by a specific combination of factors such as different

technological prospects, different market structures, regulation specificities and a different

consumer awareness (Del Rio Gonzáles, 2009), 9 sector dummy variables are introduced in our

model in order to capture the sector-specific characteristics possibly affecting a firm’s

environmental innovation strategies. The sample includes a majority of manufacturing sector

firms (34%), followed by 22% in the construction, 17,6% in the wholesale and retail trade

industry, and 7.4% in the accommodation and food service industry, with the remaining 19%

distributed across other industries such as transportation and storage, financial and information

service industry, etc. Table 1 in the appendix provides the sample composition by firm size, sector

and types of green innovation3. Due to the structure of the dataset and the variables available, we

could not account for the role of firms’ characteristics such as physical or human capital, size,

cooperation, or firms’ internalization strategies, which could possibly offer valuable explanatory

factors for firms’ EI activities. Apart from industry dummies, export activities have been used to

capture some of the heterogeneity among firms. To evaluate the degree of the export dimension,

3
Firm size dummies by turnover threshold as specified by EU standards.

22
we use a set of variables: the dummy variable MAREUR captures if an enterprise sells goods

and/or services to the EU, EFTA, or EU candidate countries. Additionally, the dummy variables

MAROTH captures if an enterprise sells goods and/or services to other countries, MARNAT

(nationally) and MARLOC (locally or regionally).

3.2 Regression model

Hierarchical regression analysis is employed in 2 steps. Model 1 represents the ordinary least

squares (OLS) regression equation predicting the first-order effects of and on :

= + + + + + (1)

where is EI, is a vector of 4 innovation domains, , financial performance; is a vector of

sectors, is an exportations vector, and indicates the error term.

The model 2, the moderated regression model (MMR) model, adds interaction terms, having the

following form:

= ++ + + + + + (2)

where is a vector of 4 interaction terms in order to test whether the relationship between

firm performance and EI is moderated by the innovation domains.

Our MMR model does not suffer from a multicollinearity problem since the inflation factors

(VIF) of most variables are below 4 (Myers, 1990). The Durbin-Watson (DW)4 test was also

4
Autocorrelation could also occur in cross-sectional data when the observations are related in some other way and
there are dependent in aspects other than time (King and Evans, 1985). For example, firms from nearby geographic
locations could provide more similar answers to each other than firms who are more geographically distant.

23
conducted to check for potential autocorrelation, obtaining a value of 2, implying that this will

not influence the accuracy of the t-tests and F values.

The potential unobserved firm heterogeneity is partially captured by including 9 industry

dummies in the econometric model, with Construction sector being the reference group

(Horváthová, 2010).

Some researchers have argued that simultaneity or endogeneity issues could exist between

environmental and financial performance due to the fact that those firms that introduce efficiently

environmental innovations could also be similarly efficient in the whole production process

(Filbeck and Gorman, 2004; Misani and Pogutz, 2015). However the interactions terms used here

partly account for this critique. Of course, no claims for causality can be made, but the outcomes

of the regression analysis can be seen as (conditional) correlations that generally go into the

direction as that of expected causalities.

4. Results

4.1 Econometric findings

Table 3 summarises the results of the estimation process. Model 1 contains the integrated EI

variable (9 environmental benefits) and the 4 innovation domain variables; Model 2 adds the

interactions between the integrated EI and the 4 innovation domains which are used to address

hypotheses H1-H4 corresponding to our main research question (RQ1). Finally, Model 3 includes

EIF (6 environmental benefits within the firm) and the corresponding interaction terms and

Model 4 includes EIC (3 environmental benefits obtained during the consumption) and the

relevant interaction terms which permit us to address the other two Research Questions: The

24
impact of EI on financial performance has a supply-related (RQ2) and/or a demand-related

component (RQ3), moderated (according to RQ1) by innovation in various other domains.

Model 1 serves as the baseline, facilitating the observation of interactions term effects. The

parameter estimates show that EI has a significant positive effect on firm performance (β=0.280,

p<0.01) and this result is in line with an extensive bulk of literature, confirming a positive

relationship (Wagner, 2010; Song et al., 2017; Aldieri et al., 2020 among others). All innovation-

domain variables affect positively firm performance (β=0.07, p<0.05 for product innovation;

β=0.268, p<0.01 for process innovation; β=0.380, p<0.01 for organizational innovation; β=0.118,

p<0.01 for marketing innovation). Exporting to EU but also to other countries positively affects

firm performance (β=0.436, p<0.01 for exports in EU; β=0.732, p<0.01 for exports in other

countries). On the other hand, selling only locally, negatively affects a firm’s financial

performance (β=-0.321, p<0.01 for a firm which sell locally). Several industry dummies which

have been included to address industry-specific effects are significant for economic firm

performance (not included in the table). Thus, in this first model (Model 1) where we did not

account for the synergies among environmental benefits and specific innovation domains, we

found that both innovation domains and EI affect positively firm performance.

Model 2 is the full decomposition model including our variables of interest: four interaction

variables: EI-by-product, EI-by process, EI-by organization, and EI-by marketing. According to

Aguinis and Gottfredson, (2010) interaction effects improve the prediction of the dependent

variable only if they explain a greater portion of the variance in the dependent variable than a

model that includes only the first effects. Thus, the null hypothesis is tested and the size of the R2

25
increases in Model 2 (.30) with an F-test (p <0.01) which indicates that this is the case with our

data.

As in the previous model (Model 1), EI has a positive effect on firms’ performance (β=0.114;

p<0.01). Similarly, innovation domain variables appear to positively impact firm performance

(β=0.209, p<0.01 for process innovation; β=0.246, p<0.01 for organizational innovation;

β=0.110, p<0.01 for marketing innovation), except for product innovation which has a non-

significant effect (β=-0.001, p>0.1).

Regarding our interaction variables, we found that the magnitude of the positive relationship

between EI and firm performance depends on the level of process innovation. The interaction

term EI-by process is positive and significant (β=0.012, p<0.05), while the EI-by product

interaction term is marginally significant and positive (β=0.016, p<0.10). The positive effect of

EI on Italian firms’ turnover (β=0.034, p<0.01) depends also on the organizational innovation

(EI-by-Organisation) which presents the most significant effect compared to the other interaction

terms. Therefore, all hypotheses of RQ1, except H4 (a positive interaction of EI and marketing

innovation on firm profitability), are confirmed by our findings. EI is synergic to other innovation

domains, becoming in their presence more profitable for the innovating firm.

In model 3 and 4 (Table 4) we estimate a (MMR) model with a narrower specification, to test

RQ2 and RQ3. That is, whether EI performance is affected by supply and demand-driven forces.

We include, in Model 3, four interaction variables which distinguish between EI within firms

(EIF) related to the supply-side forces and, in Model 4, four interaction variables which reflect

the EI with benefits to the end-user (EIC) related to demand-side forces.

26
 In model 3, where the decomposition of the EI is assumed, we confirm that the synergies between

EI and organizational innovation have the most significant effect on firm performance (EIF-by-

Organisation; β=0.057, p<0.01) followed by EI and process innovation and by the EI and product

innovation (EIF-by-Process; β=0.021, p<0.05; EIF-by-Product; β=0.024, p<0.1). However, when

a firm introduces a green innovation into its product and process strategy, but the beneficiaries

are only the consumers (EIC) (model 4), the effects on firm performance are non-significant

(EIC-by-Process; β=0.021, p>0.1; EIF-by-Product; β=0.033, p>0.1). Finally, we found that the

interactions between marketing innovation and EIF and EIC on firm performance are non-

significant (EIF-by-Marketing; β=-0.010, p>0.1; EIC-by-Marketing β=-0.004, p>0.1). From a

methodological point of view, these results show that the distinction between supply- and

demand-side benefits of EI is meaningful and helps to better identify the specific direct and

synergic effects of EI on profitability.

Table 3: MMR analysis on firm performance with integrated EI variable

Model 1 Model 2
Variables Firm performance
coef t-stat coef t-stat
Constant 7.651 134.50*** 7.708 136.35***
Total Environmental Benefits (EI) 0.280 10.54*** 0.114 4.00***
Product Innovation 0.071 1.94* -0.001 -0.04
Process Innovation 0.268 7.39*** 0.209 5.26***
Organizational Innovation 0.380 11.92*** 0.246 6.89***
Marketing Innovation 0.118 3.61*** 0.110 3.03***
EI-by-Product 0.016 1.81*
EI-by-Process 0.012 2.07**
EI- by-Organization 0.034 6.28***
EI-by-Marketing -0.004 -0.81
Exports in EU 0.436 10.96*** 0.437 11.04***
Exports in other countries 0.732 16.82*** 0.723 16.73***
Firm sell nationally 0.424 14.76*** 0.428 14.94***
Firm sell locally -0.321 -6.25*** -0.319 -6.26***
Industry sectors Yes Yes

27
Adjusted R2 0.29 0.30
F Value 339.17*** 287.95***
Number of obs. 14,430 14,430
*, **, *** indicate significant improvement at 10, 5, 1 percent levels respectively.

28
 Table 4: MMR analysis on firm performance with decomposition of the EI variable
Model 3 Model 4
Variables Firm performance
coef t-stat coef t-stat
Constant 7.706 145.67*** 7.71 137.98***
Green innovation that benefits firm (EIF) 0.101 3.40***
Green innovation that benefits the end user (EIC) 0.105 3.38***
Product Innovation 0.004 0.11 0.012 0.30
Process Innovation 0.205 5.28*** 0.239 6.05***
Organizational Innovation 0.252 7.25*** 0.277 7.86***
Marketing Innovation 0.115 3.26*** 0.109 3.04***
EIF-by- Product 0.024 1.80*
EIF-by-Process 0.021 2.31***
EIF-by-Organization 0.057 6.59***
EIF-by-Marketing -0.010 -1.23
EIC-by-Product 0.033 1.54
EIC-by-Process 0.021 1.39
EIC-by-Organization 0.068 5.12***
EIC-by-Marketing -0.004 -0.03
Exports in EU 0.441 11.31*** 0.453 11.55***
Exports in other countries 0.715 16.81*** 0.723 16.85***
Firm sell nationally 0.428 15.13*** 0.420 14.82***
Firm sell locally -0.302 -6.05*** -0.317 -6.27***
Industry sectors Yes Yes
Adjusted R2 0.29 0.29
F Value 291.38*** 286.01***
Number of obs. 14,430 14,430
*, **, *** indicate significant improvement at 10, 5, 1 percent levels respectively.

4.2 Discussion of the results

Our results show that, when assessing the profitability of EI, significant

complementarities exist among technological and non-technological innovation domains.

Therefore, failing to jointly assess product and process innovation would be inadequate when

assessing the impact of EI on financial performance (Bartoloni and Baussola, 2017). For

example, Geldes et al., (2017) found that not only technological innovations related to product

characteristics or process are necessary, but also firms must innovate with respect to

organizational procedures and marketing strategies in order to have a positive turnover.

29
Regarding Model 2, the most striking of our results regards a strong and robust impact of

organizational innovation. This includes new business practices for organizing procedures (i.e.,

supply chain management, etc.), new methods of organizing work responsibilities and decision-

making, practices which usually are not costly but are efficient for the overall turnover. This

result corroborates the idea that a firm’s investment at the organizational level is profitable and

effective when managing the organizational changes needed for green innovation (Dangelico et

al., 2017; Lopes et al., 2017).

Thus, our main research question and our hypotheses were mostly confirmed and we can

conclude that, indeed, the impact of EI on financial performance depends on the moderating

effect of innovation domains especially from EI-by-Organization (H3) and EI-by-Process (H2)

and to a lesser extend from EI-by-Product (H1). Giving weak support to the literature finding a

positive effect of the EI-by-Product, our results suggest that product innovation can also enhance

the overall impact of EI on firm performance. However, it seems compatible with the

inconclusiveness of the literature on this issue, that our estimate is significant at the 10%.

Regarding green marketing innovation which includes modifications to the design or packaging

of a good or service, novel practices for promotion and placement could increase production costs

which probably offset revenue related benefits. Our results are in line with the lack of consensus

which exists in the literature (Kumar et al., 2013). On one hand, managers need to follow stricter

environmental regulations, adapt to the increasing social concern about the environment (Peattie

and Charter, 2003; Medrano et al., 2020) and transform their marketing practices to position in

the market according to the new demands, which obviously increase costs. On the other hand,

one of the central aims of marketing tactics is to influence customers to consume more

30
environmentally friendly products or services (Sheth and Parvatiyar, 1995) which could translate

into higher sales.

Finally, the non-significant effects of the interaction term ‘EIC by-product domain’ and ‘EIC by-

process domain’ on firm performance could reflect the results of the previous literature where

demand pull effects and market forces are generally assumed not to offer sufficient EI incentives

and the consumers’ willingness to pay more for green products is limited (Rennings, 2000).

These results are in line with Driessen et al. (2013) who examined 8 firms in chemical and food

industries located in Netherlands and found that market demand for green products in these

sectors is still limited and thus the financial outcome is lower compared to other non-ecological

products. Probably the significant market potential for green products and services is still limited

to enhance firms’ financial performance. One explanation could be based on the production of

two different opposite effects of externalities when firms conduct eco-innovations: externalities

in the R&D stages and externalities in diffusion stages and their relationship with the social

desirability (Horbach et al., 2013). Thus, these opposite results could reflect a market failure

where the beneficial environmental impact for the society is greater than the private return on EI

in the process domain. Thus, we could conclude that RQ2 and RQ3 are confirmed for the Product

and Process domains. A difference between demand- and supply-side benefits is identified. That

is, EI with benefits to the firm (EIF) in product and process are positively related to firm

performance, while they have non-significant effect on firm performance when the benefits are

restricted to the consumers (EIC).

31
 5. Conclusion

This paper examines the relationship between environmental innovation and financial

performance, moderated through four innovation domains, product, process, organizational and

marketing innovation. Using the Italian CIS data (2006-2008) we found that synergies between

different innovation domains and EI affect financial performance in a different way with a

different sign or strength. In addition, we investigate the existence of EI differences between

environmental benefits generated within the firm (EIF) and the environmental benefits perceived

by the end user (EIC) to see how different motivations could affect EI profitability. Our

contribution to the relevant literature concerns the need for a joint consideration of EI together

with other innovation domains when the financial benefits of EI are assessed. We also reach

several concrete results which confirm that a firm’s EI strategy needs to be seen as a holistic

approach to the overall innovation process. Some adjustments seem necessary for the firm to

create the appropriate environment in which EI becomes an effective and even a profitable

strategy. Furthermore, our results confirm the relevance of the supply/demand divide when

considering the effects of EI on firm performance.

We find that environmental benefits achieved due to organizational change have a significant

effect on the Italian firms’ turnover. Such environmental organizational innovations include new

management techniques to organize activities such as supply chain management, new approaches

to forming decision making and work tasks and generally, practices which are usually not costly

but are efficient for the overall turnover. It turns out that EI in the organization domain acts as the

fundamental strategy of developing efficient green innovation which provides firms with

continuous organizational learning and increased capabilities and leads to a better financial

32
performance (Przychodzen et al., 2016). The findings also show that when firms engage in EI in

the marketing domain the effect on firm performance is insignificant.

Additionally, the results showed that eco-process innovations help firms to perform better

confirming the finding by Hall and Wagner (2012) that being only a green product innovator

without being a process innovator does not positively affect performance. Notably, when the EI

variable is disentangled into its firm-specific and consumer-specific benefits new findings

emerge. EI with benefits to firms (EIF) in process is positively related to firm performance and

has a non-significant effect on firm performance when the beneficiaries are only the consumers.

Thus, our findings suggest that enhancing a firm’s environmental performance requires a

systemic approach with important managerial implications since understanding the relative

benefits and limitations of each EI domain could lead to an improved financial performance.

Managers could wrongly assume that administrative actions do not have direct environmental

impacts, thus, emphasizing more on technological phases of innovation (Del Brio and Junquera,

2003). However, we found that a firm which invests in the eco-product domain without

introducing the necessary organizational and administration procedures could forego potential

extra gains. Thus, technological eco-innovations per se may not be sufficient for a firm to achieve

competitiveness and a better financial performance.

EI should induce changes in different firm domains and thus stimulates adaptations in other parts

of the firm, which could combine successfully and form a new green-economic system (Bloom

and Van Reenen, 2007). In any case, EI is a long-term procedure which entails the need for major

adjustments, which are undoubtedly risky. The firms which are better organized in term of eco-

33
innovation management, in parallel with their increased technological capability, have more

potential to succeed and control the risks that arise (Jones et al., 2005; Battisti and Stoneman,

2010).

In most western economies which are primarily service-oriented there are significant

environmental opportunities in sectors others than manufacturing such as finance, architecture

accommodation and food industry. As environmental innovations represent a path towards a

Circular Economy (CE)5, recently, the European Commission (2019) launched a report with

specific goals in line with the commitments imposed by the United Nations Sustainable

Development Goals, such as recycling 70% of packaging waste, 85% of paper and cardboard,

55% of plastic, 60% of aluminum among others, by the year 2035. For the period 2014-2020, the

EU cohesion policy allocated 150 billion Euros in green innovations, including low-carbon

investments, resource efficiency and enhanced SME competitiveness (European Commission,

2019). However, achieving the CE goals requires innovative means of production and

consumption, with new business models and practices, modifications in supply chain

management and education to employees, for the whole production process to be monitored (Kok

et al., 2013). According to the EU’s CE strategy, CE-related innovations can be organisational,

technological and marketing changes that reduce the use of materials per unit of GDP and/or

prevent waste from being generated. Thus, environmental innovation represents the process

towards a new socio-economic environment compatible with a CE (De Jesus and Mendonça,

2018).

5
CE represents an economic system based on business models that reduce, alternative reuse, recycle and recover
materials in the production, distribution and consumption process (on all levels, ranging from micro, meso to macro)
(Kirchherr et al., 2017, p.224)

34
One of the main limitations of this analysis is the use of cross-sectional data, making it difficult

to study the dynamic aspects of green innovation. Additionally, while the sample is

representative, it is constrained to a particular country and, according to Pohlmann et al. (2005,

p.3), innovation behavior is correlated to “social behavior of a specific culture setting.” However,

Theyel (2000) and Florida et al. (2001) find that organizational factors such as spatial clustering

or agglomeration affect more the adoption of environmental activities than the geographical

factors. Thus, future research must investigate more recent waves of the CIS survey and,

hopefully over a larger geographical scope, in order to explore the role of institutional and

cultural factors in the adoption and profitability of environmental innovation, jointly with other

innovation domains.

35
Appendix

Table 1: Sample composition by Firm size*, Sector and Types of Green Innovation
Variables Frequency Percent Total Green Green
Green innovation innovation
Innovation that that
(%) benefits benefits
firm (EIF) the end
(%) user (EIC)
(%)
Micro-company up to €2 million 4,950 34.3 11.4 9.9 9.5
Small-company up to €10 million 5,310 36.8 13.6 11.8 11.4
Medium-sized and large company 4,170 28.9 14.5 13.1 12.4
more than €10 million
Sector variables
Manufacturing 4,899 34 15.5 14.6 12.7
(NACE 10-33)
Electricity water supply 256 1.7 0.7 0.6 0.7
(NACE 35-37)
Construction 3,169 22 8.6 7.5 7.3
(NACE 41-43)
Whole sale and retail trade 2,564 17.6 5.8 4.6 4.9
(NACE 45-47)
Transportation and storage 1,255 6.4 2.4 2.1 2.2
(NACE 49-53)
Accommodation and food service 1,068 7.4 2.5 2.1 2.1
(NACE 55-56)
Telecommunications/ Programming 376 2.6 0.8 0.7 0.7
(NACE 58-62)
Financial, insurance and 781 5.3 1.8 1.4 1.5
information service (NACE 63-66)
Real estate and other 432 3 0.9 0.8 0.8
(NACE 68-72;77)
Total Obs. 14,430 100,0
*firm size dummies by turnover threshold as specified by the EU standards.

36
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