Hierarchy in green: Subordinate executives and eco-innovation dynamics

Abstract

Internal governance is the process through which subordinate executives, driven by their longer decision horizons and focus on long-term value, counteract the CEO's short-term self-interests to influence corporate decisions. We examine whether and how internal governance affects eco-innovation, which delivers long-term value at the expense of initial investment outlays. We find that more effective internal governance motivates eco-innovation and that this effect operates through two channels. First, subordinate executives' bottom-up influence on the CEO prompts them to increase their long-term awareness to exercise this influence and motivate eco-innovation. Second, more effective internal governance enhances the top management team's ecological awareness to motivate eco-innovation. We further reveal that subordinate-driven internal governance plays a more significant role when CEOs are more opportunistic. Last, we find that more effective internal governance improves eco-innovation quality, highlighting that subordinates play an important role in both the quantity and quality of firms' eco-innovation.