Firms' green investments: What factors matter?

This paper examines factors underlying firms' investments in environmental protection (green investments). Using micro data from Ireland's industry sector over the period 2008-2016, we analyse a range of factors internal to firms such as firm characteristics, as well as external factors including environmental regulations, competition and spillover effects from other firms' green investment decisions. Our results indicate that larger firms, importers, and firms which are part of an enterprise group are more likely to invest in equipment for pollution control and in equipment linked to cleaner technologies. Within industry competition incentivizes firms to invest in equipment linked to cleaner technologies. Further, our results indicate that the propensity of firms to invest in equipment for pollution control are higher for more energy-intensive firms. Finally, our results uncover significant positive spillover effects from firms with green investments in the same industry or the same region on firms' decisions to invest on environmental protection.