When corporate environmentalism backfires: unpacking the double-edged effect of environmental product innovation on firm growth

Abstract

While prior studies broadly explored the consequences of environmental innovation, the implications of environmental product innovation for firm performance have received relatively scant research attention. Past studies theorizing that environmental product innovation has a linear effect on firm performance have reported mixed results, indicating that the association between the two is far more complex than conceptualized by earlier research. Drawing on the natural resource-based view of the firm and the resource dependence theory, this study theorizes that the impact of environmental product innovation on firm growth follows a curvilinear (inverted U-shaped) pattern. It is also posited that this curvilinear relationship is moderated by marketing intensity, sustainability disclosure strategy and a firm’s propensity to engage in deviant corporate practices. Using a sample of U.S.-based firms and employing an endogeneity-robust econometric modelling technique, this study demonstrates that the effect of environmental product innovation on firm growth is initially positive but subsequently becomes negative. Further, this research shows that this curvilinear relationship between environmental product innovation and firm growth is moderated by a firm’s sustainability disclosure strategy (the curve flattens), marketing intensity (the curve flattens) and by a firm’s level of engagement in deviant corporate practices (the curve steepens). The results are robust to additional sensitivity analyses.