Environmental innovation and firm value: The moderating role of organizational capital

Since last decade, firms are facing the challenge of strict compliance in response to the stakeholders' awareness about climate change and environmental degradation. Considering these trends, we examine the effect of environmental innovation such as product innovation and process innovation on firm value and the moderating effect of organizational capital on environmental innovation-firm value nexus. Using the data of U.S. listed firms from 2002 to 2019, we find a significantly positive impact of environmental innovation on firm value. Our findings also reveal that organizational capital strengthens the positive association between environmental innovation and firm value, suggesting that firms with higher organizational capital are more likely to consider the demands of stakeholders to be environment friendly which in turn enhances their market value. These findings are aligned with the resource-based view (RBV) and highlight that organizational capital can play a significant role to increase the firm value through environmental innovation. Our results remain robust to subsample analyses, alternative proxies of main variables and are not subject to potential endogeneity concerns. Our study provides new insights into the environmental innovation-firm value nexus and presents important policy implications.