Green innovation, which is also called environmental innovation or eco-innovation in literature, is defined as “new or modified processes, techniques, systems, and products to avoid or reduce environmental harm” [1
]. It can be divided into green product innovation and green process innovation [2
]. Green product innovation refers to new or modified products aimed at reducing environmental impacts [6
] and green process innovation refers to new or modified production equipment, together with methods and procedures that minimize environmental load [3
]. Compared with other types of innovation, green innovation has significant externalities because it can lead to a cleaner and safer world [2
One of the most important issues on green innovation is its relationship with innovator’s performance. The researchers divide green innovator’s performance into two dimensions, environmental performance and financial performance [2
]. A positive relationship between green innovation and environmental performance has been confirmed (e.g., [2
]). However, the relationship between green innovation and economic performance is inconclusive [15
]. Some literature supports the hypotheses that green innovation positively affects financial performance (e.g., [14
]), while others do not (e.g., [6
]). It seems inevitable that green innovation can create a better environmental performance and the innovators may pay more attention to how to appropriate the innovation returns. So a further investigation on the relationship between green innovation and innovation benefit will be helpful.
Another relevant issue is how to accrue the innovation benefit, especially green innovation because of its significant externalities [3
]. Different innovation practices lead to different kinds of benefit [16
], it is important to focus on specific practices and the particular advantages associated with them [10
]. A few scholars have researched the relationship between green product innovation and its economic performance from the perspective of dynamic capabilities [3
] but little is known about green process innovation.
Industry is the major sector that consumes resources and emits pollution [1
]. Green process innovation helps to solve environmental problems in the manufacturing process. It can increase resource productivity as well as energy usage efficiency and decrease pollution during production [3
]. In addition, green process innovation is also a necessary condition for green product innovation [11
]. Product innovation is often accompanied by process innovation. No matter whether in the R&D stage, the pilot production stage or the large-scale production stage, all need process innovation to provide condition [14
]. As long as firms have first made significant progress in the implementation of process innovation, they will be able to successfully adopt product stewardship [12
]. Green process innovation is the most basic building block of green innovation [10
]. In spite of its important role, the research on green process innovation in prior literature has been relatively insufficient [7
]. In this study we focus specially on green process innovation.
We aim to empirically assess the effect of green process innovation on firm benefit and how such an effect occurs. The firm’s decision makers can look forward to more benefit from proper green strategies based on a better understanding of the relationship between these constructs. Specially, we address the following research questions: (1) Does an innovator benefit from green process innovation? (2) How can green process innovation bring these benefits to its innovator?
Although organization capability is often seen as a dominant factor in influencing green innovation performance, such as [3
], the same applies to other types of innovation [25
]. Considering the environmental externality of green process innovation and its potential positive effect on firm image [4
], we try to research the above relationship from the perspective of firm image.
This study advances our understanding of green innovation in several ways. First, we contribute to green innovation by concentrating on green process innovation which has been underestimated in prior research. Second, unlike available literature, we describe the innovator’s benefit in two dimensions, short- and long-term benefits. It will help us perceive firms’ green innovation performance through this differentiation. Third, we explore how green process innovation can result in improved firm benefit. To the best of our knowledge, current research has provided insights into the relationship between green innovation and its economic performance, but little about how green process innovators achieve the desired benefits.
The survey data used in this paper is from Chinese coal mining firms. The study of green process innovation in this industry is important. As a primary energy industry, coal mining and processing is crucial in China [26
]. Coal mining firms are considered to make a major contribution to environmental issues, especially in water pollution and land deterioration [27
]. Environmental protection policy is the main driver of green process innovation [5
]. A variety of environmental policies have been issued to regulate coal mining firms in China since 2005. These policies included Circulation Economy Promotion Law, Cleaner Production Promotion Law, Solid Waste Pollution Prevention Law, Land Reclamation Law, etc. The Coal Law was revised in 2011. Environmental standards, including mining recovery ration, water recycling utilization rate, and land reclamation rate, are set up in the revised edition. Only those firms who meet these standards can get mining permits [26
]. In order to reduce the discharge of waste and meet the environmental standards, many coal firms, especially the large coal firms, have changed the traditional linear development mode of “resource- product-waste” and formed a circular development mode of “resource- product-renewable resources” [29
]. To fundamentally solve the environmental issues caused by coal mining, great breakthroughs have been made by using green mining technology [27
]. It is in this industry that green process innovation is highly appreciated [16
The remainder of this paper is organized as follows. We present some literature reviews and hypotheses in Section 2
. We demonstrate the methodology and measurement in Section 3
. We carry out some empirical analyses in Section 4
. Conclusions and policy implications in Section 5
conclude the paper.
4. Empirical Results
4.1. Correlation Analysis Results
The correlation coefficients among the variables used in this study are presented in Table 2
. It can be found that green process innovation has significantly positive correlations with firm image, short- and long-term benefits. From Table 2
we also see short-term benefit and long-term benefit are highly correlated. There are two potential causal relationships between them. One is the positive effect of short-term gains on long-term gains, which is empirically verified by Jacobson [24
]. In practice, however, there have been some situations that have shown good current financial performance but poor long-term performance [69
]. In view of this contradiction, Rosenzweig [70
] thought it may have been caused by the halo effect, a basic human tendency to make specific inferences on the basis of a general impression. That is to say, when a firm has a good financial performance, many people conclude that it will continue to prosper. Another causal relationship is the positive effect of long-term performance on financial performance which deserves further study.
4.2. Regression Results
In our model, firm image is likely to be an endogenous factor because proactive green innovators may perceive themselves with a better image. We regress firm image on green process innovation to get residuals first. It is a common method used to correct for the endogeneity [71
]. Then the Durbin-Wu-Hausman test is used to verify the endogeneity. The result indicates that endogeneity does not exist both long-term and short-term.
The results of regression analysis are presented in Table 3
. The dependent variable in Model 1 is short-term benefit and the independent variable, green process innovation, shows that it has no significant effect on firm’s short-term benefit (β = 0.018, p
> 0.1). So H1a is not supported (see Model 1). As we stated in Section 2.1
, the short-term benefit we use here is comparable to the term financial performance in other literature. Many previous studies, e.g., [6
], focus on the relation between green innovation, including both green product innovation and green process innovation, and financial performance and provide conflicting results. Weng et al. [15
] finds that green innovation can generate better financial performance while others think the positive relationship is not a realistic expectation [13
]. This highlights that different innovation practices differently impact on firm benefit. When it comes to green product innovation, most of the literature confirms that it has a positive effect on financial performance [10
]. In this study, we find the positive relationship between green process innovation and short-term benefit is non-significant, which is different from green product innovation. The reasons for this difference are discussed in the next subsection.
The relationship between green process innovation and long-term benefit is tested in Model 3, showing a significant positive relationship between these two variables (β = 0.378, p
< 0.01). Thus H1b is supported (see Model 3). As much literature has stated that green innovation helps firms sustain long term competitiveness [9
], this is also applicable to green process innovation.
H2 is tested in Model 5. The dependent variable is firm image and the independent variable is green process innovation. As the result shows, green process innovation plays a significant positive effect on firm image (β = 0.215, p
< 0.01). H2 is supported (see Model 5). To our knowledge, the research about green innovation from the angle of firm image is relative little. In earlier studies, Shrivastava [3
] argued that green process practices can make firms more attractive to communities. Our result is fully in line with his statement.
H3a and H3b are tested in Models 2 and 4. The result in Model 2 shows that the relationship between firm image and short-term benefit is positive but not significant (β = 0.185, p
> 0.1), so H3a is not supported while Model 4 shows a significant positive effect played by firm image on long-term benefit (β = 0.203, p
< 0.01). H3b is supported in this paper. Using data from the manufacturing industry in Spanish, Amores-Salvadó [6
] confirmed good firm image can bring in a better financial performance. However, our research shows a non-significant result. We will discuss this later.
In order to test the mediating effect of firm image, a three step approach is used according to Baron and Kenny [72
]. First, we regress the mediator on the independent variable; second, the dependent variable on the independent variable and third the dependent variable both on the independent variable and the mediator. Separate coefficients of these equations are estimated and tested. When the regression coefficients in all of the three equations are significant, the mediating effect can be proved.
Although green process innovation can affect firm image in step 1 (β = 0.215, p < 0.01; see Model 5), we can see that the regression result in step 2 is non-significant (β = 0.018, p > 0.1; see Model 1) when the dependent variable is short-term benefit. So the mediating effect cannot be verified. When the dependent variable is long-term benefit, the regression results in these three steps are all significant which can be seen in Models 5, 3, and 6. Additionally the coefficient of green process innovation in step 3 (β = 0.216, p < 0.01; see Model 6) is still significant and is less than in step 2 (β = 0.378, p < 0.01; see Model 3), a partial mediation played by firm image on the green process innovation and long-term benefit relationship is proved.
To access the robustness of our findings, we ran another estimation using hierarchical multiple regression [73
] and obtained the same result as mentioned above.
Additionally the D-W values of these models indicate the residuals are independent. The variance inflation factors (VIF) of these models are between 1 and 2, which means we do not have to take multicollinearity problem into our consideration.
In short, the positive relationship between green process innovation and short-term benefit is non-significant (see Model 1). Green process innovation has a statistically significant positive effect on long-term benefit (see Model 3), and firm image plays a partial mediating role (see Models 3, 5 and 6).
This study empirically explores the relationship between green process innovation and firm benefit. Unlike prior researches, firm benefit is divided into two dimensions, short- and long-term benefits; and in order to interpret their relationship, a mediating variable, firm image, is added in our model. The five hypotheses stated in this study are all supported except H1a and H3a.
As Section 3
defined, the short-term benefit in this study focuses on the firm’s financial performance. Although some researches [10
] show a positive relationship between green product innovation and financial performance, the relationship between green process innovation and short-term benefit is non-significant in our research. There are three possible explanations for this. First, different from green product innovation, which is pulled by customer need mainly [59
] and can bring income from the market directly [17
], green process innovation is mainly pushed by environmental policy [5
] and cannot bring income from the market directly. Second, although China has established stringent environmental protection laws, they are not consistently enforced. There are still many problems in environmental policy enforcement, such as regional regulation competition and environmental information lack of transparency, which, to some extent, have affected the policy enforcement efforts [28
]. Third, the pay-back period of the investment in green process innovation is very long [75
]. Although green process innovation can reduce cost by improving the efficiency of energy and material and avoiding penalty, this innovation always needs large investment in equipment and R&D [2
]. These three factors may cause firms’ managers to feel that the investment in green process innovation cannot bring good returns in the short run.
Firm image has little to do with short-term earning. This may be because the samples used in this study are coal mining firms. The difference between coal products is little and the brand awareness of coal firms is relatively poor which causes the role of firm image in the product market to be small and there is no significant relationship between firm image and short-term benefit. This result is consistent with Ambec and Lanoie [36
] who think consumers are less likely to be familiar with firms’ green image as measured by its emissions to water or atmosphere.
The long-term benefit is reflected in the influence in the industry, the relationship with government, and the competitiveness of the employees. Green process innovation is conducive to increasing long-term benefit, and firm image plays as a mediator. Those firms who take proactive actions to implement process innovation can improve their firm images and then get long-term benefit. Unlike short-term benefit, the stakeholders involved in long-term are competitors, government, and employees who have enough information about the innovators. In the process of continuous interaction, the firms who are actively engaged in green process innovation can improve the stakeholders’ view of them, and enhance the image of the firm, thereby increasing their influence and appeal to achieve long-term development.
5. Conclusions and Policy Implications
This paper studies the relationship between green process innovation and firm benefit, considering the mediating effect of firm image. Although some researches have analyzed the relationship between green innovation and its economic performance, including product innovation and process innovation, this paper focuses specially on green process innovation. As mentioned above, green process innovation can help improve firm image and further improve the long-term benefit that the firm image plays as a mediator. However, the positive relationship between green process innovation and short-term benefit is non-significant.
5.2. Policy Implications
With respect to private sectors, the results can be used to improve social welfare by encouraging additional firms to voluntarily reduce their environmental impacts beyond legal requirement. Going green is not merely a way to conform with environmental policy, it improves the influence of the focal firm in the industry, which enhances its sustainable capabilities. These findings may help firm managers realize the potential benefit their firms can accrue through using green process innovation. These managers can take a more proactive stance by using the presented evidence to gain executive-level support for expanding their current innovation programs.
Besides this, firms should better understand the mediating role played by firm image. Firm image has a positive effect on long-term income, but it is not obvious for short-term income which leads to the difference between short-term gains and long-term gains of green process innovation. Because of the close contact with enterprises, the up-stream suppliers, employees and other stakeholders can timely capture information of these innovation firms and form cognition of the firm image, so green process innovation is good for the firms’ long-term benefit. Additionally, the similarity of coal products results in the market users not having the ability to distinguish firms’ green practices in production. Therefore, the relationship between firm image and short-term benefit is not obvious so that the green process innovation cannot make profits in the short term. Firm managers should be deeply aware that firm image is a valuable asset. What the proactive green process innovators need to do is not only put emphasis on their substantive green actions but also disseminate environmental practices to the market. A series of designs can be used purposely to give the market a good impression, e.g., environmental communication to express firms’ environmental concern in relation to these processes [6
]. Proactive innovation firms can discuss what they have done and what they are doing on their websites and deliver their environmental information [15
With respect to the public policy, there are also many important implications in these findings. Regulation plays a key role in green process innovation [5
]. Government can trigger firms to use clean production technology by pollution tax, abatement subsidy, and green public purchase etc. [36
]. Although China has established relatively perfect environmental policies, green process innovators cannot be compensated in a short time due to the lack of strict policy enforcement and the lack of incentives of other market tools. Strict pollution control standards are necessary, and strict enforcement measures are also needed. Besides pollution charges, other flexible environmental policy instruments, such as tradable permits, government procurement, and other market-based instruments, are necessary [19
]. A multi-level environmental performance monitoring system and information audit mechanism should be setup gradually. If consumers are armed with publicly available data and information from other independent third-parties, they will be likely to be more familiar with the green process innovators [15
]. This will help the green process innovators get better access to the product markets and increase the probability to be chosen as suppliers [19
Due to the lack of publicly available historical data, this study uses the survey data. The possible lag between the innovation process and innovation gains has not been considered. In addition, the samples in this study are from the coal industry, which may limit the generalizability of the findings.
The existing research on green innovation can be divided into two categories, one is comprehensive research on green innovation and the other is specialized research on green product innovation. In view of the gaps in the existing research, we chose green process innovation as our theme, but there was no further division of it. Considering the complexity of green process innovation, to further distinguish a separate study is needed in the follow-up. For example, energy-saving technology innovation can save energy and raw materials for firms, which is more conducive for firms to reduce manufacturing costs; such as, compared with energy saving technology, emission reduction technology may not be conducive to the financial performance of the firm, so how can the firm get profit from the innovation of emission reduction technology?