Article

Green Investor Holdings and Corporate Green

Technological Innovation
Lin Zhang 1, Yamin Xie 2,3,* and Dingjie Xu 1

1 Southampton Business School, University of Southampton, Southampton SO17 1BJ, UK;

[email protected] (L.Z.); [email protected] (D.X.)
2 SILC Business School, Shanghai University, Shanghai 200444, China

3 UTS Business School, University of Technology Sydney, Sydney, NSW 2007, Australia

* Correspondence: [email protected] or [email protected]

Abstract: This study builds upon existing research on institutional investors and corporate green
innovation by distinguishing green investors, who prioritize environmental contribution, from gen-
eral institutional investors. Drawing on the stakeholder theory and the Porter hypothesis, we hy-
pothesize that the shareholdings of green investors can effectively stimulate corporate enthusiasm
for green innovation, with state ownership exerting a positive moderating influence. Utilizing panel
data from China’s A-share listed manufacturing firms spanning from 2010 to 2019, we employ a
fixed effect regression model to test these hypotheses. Our empirical findings confirm our expecta-
tions, demonstrating that green investors’ shareholdings indeed foster corporate green innovation.
Moreover, we observe that this positive relationship is amplified within state-owned enterprises,
indicating the presence of a robust and stable environmental regulatory framework across the mar-
ket. Additionally, our results support the Porter hypothesis, suggesting that adherence to environ-
mental regulations can coexist with firm performance rather than being mutually exclusive. This
study contributes to the literature on green investors and corporate green innovation, providing
valuable insights for the development of China’s green financial system and sustainable develop-
ment strategies.

Keywords: green investors; socially responsible investment; green innovation; stakeholders

Citation: Zhang, L.; Xie, Y.; Xu, D.

Green Investor Holdings and
1. Introduction
Corporate Green Technological
Innovation. Sustainability 2024, 16,
With rising environmental pollution and frequent natural disasters like El Niño and
4292. https://doi.org/10.3390/ forest fires, governments globally are increasingly leaning towards implementing envi-
su16104292 ronmental regulations (ER), urging companies to conserve energy and lower emissions.
For instance, The Paris Agreement encourages countries to adopt the carbon emissions
Academic Editor: Taewoo Roh
trading system to achieve a low-carbon economic development transition (Lian et al.,
Received: 18 April 2024 2022) [1]. Environmental regulations can bring additional compliance cost on entities and,
Revised: 16 May 2024 thus, destroy firms’ performance. To avoid the negative impact of ER on firm perfor-
Accepted: 17 May 2024 mance, enterprises may choose to conduct green innovation activities (Lian et al., 2022)
Published: 19 May 2024 [1]. Green innovation, also known as green technology innovation or sustainable innova-
tion, was first proposed by Braun and Wield (1994) [2]. It refers to innovations in technol-
ogy associated with ecological environment improving, energy saving, waste recycling,
Copyright: © 2024 by the authors. and emissions reduction (Carrion-Flores and Innes, 2010 [3]; Bai et al., 2019 [4]).
Submitted for possible open access Research on green innovation predominantly adopts an optimistic attitude. Chen
publication under the terms and (2011) [5] proposed that green innovation encompasses specific aspects within actual pro-
conditions of the Creative Commons duction processes, including waste treatment, recycling, and the manufacturing of green
Attribution (CC BY) license
products, among others. As economic development progresses and there is a growing na-
(https://creativecommons.org/license
tional emphasis on environmental protection, the concept of green innovation is continu-
s/by/4.0/).
ally evolving and broadening. Some scholars have adopted broader interpretations of

Sustainability 2024, 16, 4292. https://doi.org/10.3390/su16104292 www.mdpi.com/journal/sustainability

Sustainability 2024, 16, 4292 2 of 21

green innovation, also referring to it as environmental or ecological innovation. They con-

tend that over the long term, green innovation has the potential to not only alleviate ad-
verse environmental effects but also yield economic advantages by optimizing the utiliza-
tion of limited resources, while promoting social cohesion (Fu et al., 2016 [6]).
Su, He, and Yin (2009) [7], from a corporate standpoint, define corporate green inno-
vation as the process of increasing innovation’s economic benefits while considering long-
term economic and environmental gains. Besides core green technological innovation, in-
novation in green systems also holds significance and has guiding and supportive roles,
with both aspects complementing each other (Chen and Feng, 2020 [8]). Given the increas-
ingly pivotal role of green innovation, it is worthwhile to explore strategies for stimulating
enterprises’ green innovation practices.
Several factors may influence the extent of corporate green innovation. Among these,
institutional investors wield considerable influence on firms, as they provide financing.
Green investors, a subset of institutional investors particularly focused on environmental
protection, deserve closer examination. Previous studies on the impact of institutional in-
vestors on technological innovations have generally treated them as a collective entity,
without distinguishing between different types of investors based on their motivations.
This paper aims to address this gap by specifically investigating the impact of the presence
of green investors on enterprises’ green innovation initiatives.
In line with previous research (e.g., Jiang, Lu, and Li, 2021 [9]), we define green in-
vestors as funds that specifically target and invest in sectors related to green initiatives,
environmental preservation, renewable energy, and ecological sustainability. Despite the
fact that China’s socially responsible fund market is still in its nascent stages, these funds
demonstrate distinct objectives compared to traditional investment funds, incorporating
economic, environmental, and social considerations (Zhang, 2021 [10]). Drawing from
stakeholder theory, which posits that enterprises have a responsibility to fulfill the needs
of various stakeholders, we anticipate that the presence of green investors will incentivize
firms to engage in green innovation.
Variations in institutional frameworks play a significant role in shaping differences
in innovation activity and performance among nations (Choi, Lee, and Williams, 2011
[11]). For example, the Anglo-American model is characterized by widely dispersed own-
ership, reliance on equity-based financing systems, and a market-centric approach to cor-
porate oversight. The German–Japanese stakeholder model emphasizes long-term and
bank-centric finance, ownership concentration by large blockholders, and control mecha-
nisms rooted in insider influence (e.g., La Porta et al., 1996 [12]; Hall and Soskice, 2001
[13]; Aguilera and Jackson, 2003 [14]). However, due to substantial institutional diversity,
many countries do not neatly fit into these established models (Aguilera and Jackson, 2003
[14]).
Chinese corporations, for instance, demonstrate distinctive corporate governance
characteristics, including concentrated ownership structures (Choi et al., 2011 [11]), own-
ership by families and insiders (Filatotchev et al., 2007 [15]), state ownership, and an in-
creasing presence of institutional and foreign investors (Chang, Chung, and Mahmood,
2006 [16]). Given the transitioning nature of the Chinese economy, exploring green inno-
vation within Chinese listed entities offers valuable insights into the literature on this
topic.
Furthermore, we examine how state ownership affect the influence of green inves-
tors. State-owned enterprises (SOEs), known for their political significance, are utilized by
governments as a means to engage in the market. We contend that due to the alignment
between the environmentally beneficial nature of green innovation and the inherently
public nature of SOEs, these enterprises will exhibit increased enthusiasm and effective-
ness in pursuing green technological innovation.
Regarding the relationship between environmental regulation and enterprises’ inno-
vation practices, three main perspectives emerge. The first perspective, known as the “Por-
ter Hypothesis”, initially introduced by Porter (1991) [17], proposing that economic
Sustainability 2024, 16, 4292 3 of 21

development and environmental protection are not mutually exclusive but rather mutu-
ally reinforcing. From a corporate standpoint, adherence to appropriate environmental
regulations can enhance a company’s enthusiasm and capabilities for innovation, opti-
mize resource utilization, and ultimately strengthen its competitive edge (Porter, 1991
[17]). Porter and Van der Linde (1995) [18] further refined this hypothesis, arguing that
well-designed environmental regulations enforced by governments or pressures from
other stakeholders can stimulate businesses to actively innovate. Despite the substantial
resources and costs required for research and development efforts, the eventual benefits
of innovation outweigh the associated costs and yield additional returns, a phenomenon
known as the “innovation-offset effect” (Porter and Van der Linde, 1995 [18]). While this
effect may not be immediately evident in the short term and may only partially offset
costs, in the long run, environmental regulations contribute to a company’s competitive-
ness and operational efficiency, enabling it to fulfill its social responsibility for both envi-
ronmental protection and economic development.
The second perspective presents an opposing argument, asserting that environmen-
tal regulations impose burdens on enterprises, leading to a reduction in technological in-
vestments and consequently harming innovation (Song, Zhang, and Zhang, 2021 [19]).
Conversely, the third perspective suggests uncertainty regarding the relationship between
environmental regulation and corporate innovation activities, proposing the potential for
a non-linear correlation between the two (Huang et al., 2022 [20]).
We aim to investigate whether the Porter hypothesis holds true by analyzing the in-
fluence of state ownership on the implementation of green innovation practices. Owner-
ship structure can significantly impact the adoption of green technology innovation. The-
oretical research on innovation within state-owned enterprises (SOEs) typically explores
managerial, political, and resource-based perspectives. From a managerial standpoint, the
principal-agent problem suggests that SOEs, facing governance challenges, may exhibit
conservatism, leading to limited enthusiasm for green innovation. The political perspec-
tive argues that government control over SOEs can hinder efficiency due to political influ-
ences on decision-making processes. However, the resource perspective suggests that
SOEs, with their access to abundant resources, are well-positioned for green innovation
initiatives. Moreover, the close alignment between SOEs and the government can reduce
information asymmetry, thereby enhancing innovation efficiency.
Using a sample of 10,100 firm-year observations of Shanghai and Shenzhen A-share
listed companies from 2010 to 2019, we investigate whether green investors’ holdings can
effectively promote corporate green technological innovation, as well as the moderating
role of state-owned enterprises in the relationship between green investors and green
technological innovation. We conduct fixed effect regression analysis to test our hypothe-
ses. According to the existing literature, we expect that the entry of green investors will
positively affect corporate green innovation. In addition, we expect more pronounced re-
sults in state-owned enterprises. Empirical results support our hypotheses, suggesting
that the presence of green investors encourage enterprises’ green innovation activities. We
also find that this positive effect of green investors on green innovation is more pro-
nounced among state-owned enterprises, indicating the nation’s relatively sound envi-
ronmental regulations (ER) system and strong regulation. Our finding provide support
for the Porter hypothesis. Our findings are robust to instrumental analysis, propensity
score matching analysis, multi-time-point difference-in-differences analysis, and alterna-
tive measurement tests.
Our research makes several significant contributions to the existing literature. Firstly,
we distinguish between green investors and general institutional investors, demonstrat-
ing the positive influence of environmentally focused investors on corporate innovation.
Secondly, we separate green innovation from general technological innovation, allowing
for a precise assessment of how green investors impact environmental innovation within
enterprises. Thirdly, our findings highlight the facilitative role of state ownership in pro-
moting green innovation. Through an examination of the green innovation activities of
Sustainability 2024, 16, 4292 4 of 21

state-owned enterprises, we provide empirical support for the Porter hypothesis, suggest-
ing that the benefits and profits derived from green innovation outweigh the compliance
costs associated with environmental regulations. Our study expands the body of literature
on green investors and green innovation while offering insights specific to the Chinese
market.
The remainder of this article is organized as follows: Section 2 provides a review of
the relevant literature and develops hypotheses; Section 3 outlines our research method-
ology; Section 4 presents the empirical findings; and Section 5 concludes and offers further
discussion.

2. Literature Review and Hypothesis Development

Green innovation, also referred to as environmental innovation, encompasses the ad-
vancement of eco-friendly production methods and the application of new or adapted
knowledge and technologies to mitigate environmental damage (e.g., Brunnermeier and
Cohen, 2003 [21]; Roh, Lee, and Yang, 2021 [22]). Green innovation, compare to other
forms of innovation, exerts more externality as it helps to create a safer and cleaner world
(Berrone et al., 2013 [23]). Green innovation is different from conventional technological
innovation due to its “double externality”. The first externality of corporate green innova-
tion involves the “knowledge spillover externality”. Due to inadequate intellectual prop-
erty protection, companies achieving advancements in green technology innovation may
find their achievements replicated by other firms (Xiang, Liu, and Yang, 2022 [24]). Con-
sequently, the overall benefits of green innovation may vary significantly, reducing busi-
nesses’ incentive for further green innovation.
The second externality of corporate green innovation concerns the “environmental
spillover externality”. Companies committed to social responsibility incorporate environ-
mental protection considerations into their production and operations, engaging in rele-
vant green innovations such as novel production processes aimed at reducing or even
ameliorating environmental pollution during product manufacturing [24]. This conduct
contributes to environmental conservation and ecosystem enhancement, benefiting the
entire industry and society. However, businesses do not receive compensation for these
actions, significantly impacting their motivation for green innovation.
Friedman (2007) [25] posits that investments in environmental protection that pro-
vides advantages to external stakeholders at the cost of shareholders will decrease firm
value and firm profitability, which is against the development of corporations. With en-
larged amounts of research examining green innovation and green investment, it is now
widely recognized that green innovation holds significant importance for both businesses
and society. Prior studies have revealed positive correlations between green innovation
and firm performance, covering both environmental and economic indicators (e.g., Ber-
rone et al., 2013 [23]; Chen et al., 2006 [26]). Research findings (e.g., Shrivastava, 1995 [27];
Qiu et al., 2020 [28]) suggest that green innovation effectively minimizes waste and costs
through enhancements in energy and fuel efficiency, mitigation of carbon emissions, and
recycling-based waste reduction, thereby enhancing environmental performance. Imple-
menting green innovation can result in increased productivity, ultimately contributing to
enhanced long-term economic performance for firms (Ma, Hou, and Xin, 2017 [29]), with
the profits generated from corporate environmental protection endeavors expected to be
sustainable (Zhou and Jin, 2023 [30]).
Green innovation provides solutions for increasing resource productivity and reduc-
ing cost and emissions, which improves both industry performance and environmental
performance (Pujari, 2006 [31]). Regarded as a management framework, green innovation
promotes environmentally conscious practices, aiding firms in conforming to interna-
tional environmental reporting standards and carbon tax regulations (Adams et al., 2016
[32]; Wang and Jiang, 2021 [33]). Examining both conventional innovation and green in-
novation, Khalil and Nimmanunta (2023) [34] find that both measures of innovation lead
Sustainability 2024, 16, 4292 5 of 21

to increases in firm value, yet conventional innovation benefits firm valuation sacrificing
environmental quality while green innovation improves either type of firm performance.
Corporate green innovation is a part of corporate governance, yet it diverges from
traditional governance initiatives due to the high uncertainty and complexity inherent in
research and development projects (Huang et al., 2022 [20]). Corporate innovation, func-
tioning as a strategic action, might be driven by various incentives such as advancing tech-
nological advancements, maintaining competitiveness, and obtaining additional benefits
like addressing stakeholders’ needs and regulatory compliance (Lian, Xu, and Zhu, 2022
[1]). These motivations substantially influence the quality of innovation. The existing lit-
erature often examines environmental regulation and innovation intensity without distin-
guishing between green innovation and broader technological advancements (Lian et al.,
2022 [1]). We aim to fill this gap by separating green innovation from general technological
innovations.

2.1. Green Investors and Enterprise Green Innovation

The factors influencing the adoption of green innovations have been of particular in-
terest to scholars, especially from the perspective of stakeholders. Investors are a signifi-
cant component of external stakeholders, among whom institutional investors are funda-
mental due to their size and influence. Institutional investors play not only the role of
investors in the financial market, but also participate in corporate decision-making and
governance through various means, exerting a certain influence on corporate behavior
(Cai and Rao, 2015 [35]). Barnea, Heinkel, and Kraus (2005) [36] found that, to some extent,
institutional investors function similarly to external creditors, prompting companies to
alter their financing structures, adopt low-leverage financing arrangements, and corre-
spondingly reduce their reliance on debt financing. Institutional investors assume a su-
pervisory role, making them indispensable participants in corporate governance. Among
institutional investors, green investment has attracted increasing attention from scholars
and has been closely scrutinized.
The past literature has touched upon green investors (e.g., Barnea et al., 2005 [36]),
but research on China’s green financial system and green investors is scarce. This study
fills the gap in this area. Upon reviewing the existing literature, it is evident that scholars
primarily approach the definition and study of green investors from two perspectives. The
first method for defining green investors is by analyzing stock investment details and fund
entity information provided by the CSMAR database. Funds that target and invest in
green, environmental, renewable energy, and ecological sectors are identified and defined
as green investors (Jiang et al., 2021 [9]). The second approach to defining green investors
views socially responsible investment funds as green funds or green investors.
Between the two prevailing definitions of green investors, this study ultimately
adopts the first. The rationale is as follows: Firstly, although socially responsible invest-
ment (SRI) is an essential contemporary investment philosophy, and has gradually fo-
cused on the social, environmental, and governance (ESG) dimensions since the 21st cen-
tury, China’s SRI is comparatively nascent compared to the West, resulting in a limited
depth of SRI and ESG research. Secondly, even when considering green investments from
the perspective of the second definition, i.e., socially responsible investment funds or ESG
investments, some scholars’ research methods share similarities with the first definition.
For instance, Zhang (2021) [10] defines socially responsible investment funds by utilizing
CSMAR databases to identify funds related to “green investment, SRI, or ESG.” Thirdly,
although green investors are the primary and significant participants in socially responsi-
ble investments, they are not synonymous with socially responsible investors. In compar-
ison, socially responsible investments encompass a broader scope and more comprehen-
sive concept, while green investors tend to focus primarily on environmental aspects.
Green investors embody the principles of socially responsible investing (SRI), diverg-
ing from conventional investors by holistically considering financial, social, environmen-
tal, and ethical standards during investment decision-making. These investors
Sustainability 2024, 16, 4292 6 of 21

predominantly support enterprises that align with sustainable development ideals,

thereby promoting corporate social responsibility (Peng and Peng, 2017 [37]). Despite past
skepticism from scholars such as Friedman, the SRI sector has experienced rapid growth
in recent decades. Green finance and SRI share numerous similarities and could be con-
sidered branches of the same tree. The majority of domestic research on SRI often adopts
a green finance perspective. Ma (2015) [38] demonstrated that green finance can enhance
the returns on green innovation projects through efficient market resource allocation
while concurrently mitigating the impact of heavily polluting projects. Consequently, a
greater proportion of social funds can be directed towards green financial industries.
Thus, the successful construction of a green financial system is of vital importance for
China’s incremental economic growth. Li (2002) [39] also found that social, environmen-
tal, and financial performance are not mutually exclusive (Zhou and Jin, 2023 [30]), and
socially responsible funds can effectively achieve a balance between the three.
Enterprises’ green practice mainly affect external stakeholders, yet not all stakehold-
ers will necessarily support green innovation. Stakeholders with long horizons who rec-
ognize the value of green innovation will support corporate green innovation activities
and stakeholders who might benefit from environmental practice will also vote for green
innovation, whereas some stakeholders may believe that the high financial investment in
preparatory work for green innovation and the significant time lag in terms of outcomes
increase short-term pressure on firms and, thus, they do not advocate for green innova-
tion. Stakeholder theory suggests that, as a crucial part of external stakeholders, institu-
tional investors may play a fundamental role in influencing enterprises’ green innovation
(Zhao et al., 2023 [40]). Green investors, as a distinct group of institutional investors, em-
body the concept of socially responsible investing. They prioritize environmental con-
cerns and integrate economic and social factors when investing in socially responsible
companies. These investors guide businesses to emphasize ecological preservation in their
operations to ensure sustainable development, ultimately achieving both economic and
social value. Corporate green innovation also possesses a “green” attribute, often reflect-
ing a company’s environmental consciousness and sense of social responsibility.
Since green investors do not provide financing for environmental polluting corpora-
tions, we expect there to be a positive correlation between the engagement of green inves-
tors on enterprises green innovation. Therefore, we posit the following hypothesis:
H1. Green investor holdings promote corporate enthusiasm for green technological innovation.

2.2. State Ownership and Enterprise Green Innovation

Regulatory environment can also affect the level of corporate green technology inno-
vation: talent level, regional openness, government guidance, and environmental regula-
tions all influence green innovation based on provincial data. Zou, Hu, and Yao (2019) [41]
find differences in market competition intensity, company size, capital deepening, and
foreign capital introduction levels contribute to varying green innovation performance
across industries. Li, Tang, and Pan (2015) [42], through an empirical study of over 200
companies, discovered that improvements in green innovation can be achieved by policy
orientation, market orientation, and increased environmental awareness among manag-
ers. Given the substantial funding required and the considerable uncertainty and lengthy
development cycles associated with green innovation, a relatively stable and sophisticated
regulation environment can be crucial. Therefore, the role of government in green inno-
vation should not be overlooked.
The government can bring greater and more direct pressure on enterprises (Bi, Peng,
and Zuo, 2012 [43]). It is believed that the greatest pressure firms face comes from govern-
ment regulations (Zeng et al., 2019 [44]). The Chinese government is vigorously advancing
green finance and implementing a series of policy guidance measures. The Chinese gov-
ernment has prioritized the advancement of ecological civilization and sustainable devel-
opment infrastructure, pledging to encourage environmentally friendly practices among
Sustainability 2024, 16, 4292 7 of 21

businesses by emphasizing energy conservation and emissions reduction (Wang, Sun, and
Guo, 2019 [45]). For enterprises, green investments like energy efficiency improvements
and carbon footprint reduction have become essential focal points (Wang et al., 2019 [45]).
Due to the governmental regulation’s influence on corporate green practice, we investi-
gate the impact of government through the role of state-ownership in the relationship be-
tween green investors and corporate green innovation, for the reason that government
shareholding is a direct link between corporations and green environment.
Until the late 20th century, the prevailing belief was that stringent environmental
regulations would increase the cost of environmentally damaging actions, imposing op-
erational burdens on corporations and consequently diminishing their competitiveness
(Yu et al., 2023 [46]). Porter and Van der Linde (1995) [18] were pioneers in proposing that
environmental goals and industrial competitiveness were not mutually exclusive. They
argued that “well-designed environmental standards can stimulate innovation, poten-
tially offsetting compliance costs” (Porter and Van der Linde, 1995 [18]), a concept known
as the “Porter Hypothesis”. They discuss how the impact of environmental regulations on
enterprise technological innovation depends on the balance between compliance costs and
innovation incentives. It highlights that stricter regulations increase compliance costs but
also stimulate innovation in export industries. However, when regulations are weak, en-
terprises prioritize profit maximization and often resort to end-of-pipe treatments, hin-
dering innovation (Ma and Li, 2019 [47]). As environmental regulations improve and in-
tensify, enterprises are encouraged to innovate, gaining competitive advantages and re-
ducing reliance on regulation substitutions. Thus, when innovation incentives outweigh
compliance costs, environmental regulations can drive technological innovation in enter-
prises.
Empirical studies on the Porter hypothesis have yielded varied results in the schol-
arly literature. Chen et al. (2006) [26] examined companies incorporated in Taiwan and
discovered that environmental regulations stimulate increased investment in research and
development while also enhancing industrial productivity. Qiu et al. (2018) [28] found
that the Porter hypothesis holds true for firms with high innovation capabilities but not
for others. They illustrate that for such firms, the additional benefits from investing in
innovation can offset the increased compliance costs through enhanced operational effi-
ciency. Conversely, firms with low innovation capabilities struggle to manage compliance
costs, thereby reducing their incentive to invest in innovation (Qiu et al., 2018 [28]). Al-
brizio et al. (2017) [48] investigated a panel of Organization for Economic Co-operation
and Development (OECD) countries and found no support for the Porter hypothesis. They
argued that the costs of environmental regulation on corporations outweigh its benefits,
resulting in a negative impact on firms’ productivity (Zhang, 2021 [10]). Meanwhile, there
are scholars suggest there being a non-linear correlation between environmental regula-
tion and innovation, addressing an either “U-shaped” or “reversed U-shaped”, or a
“threshold effect” between them (Ma and Li, 2021 [47]).
State-owned enterprises, in comparison to private enterprises, exhibit a heightened
sense of social responsibility and shoulder the crucial responsibility of executing these
policies. The government, as the actual controller of state-owned enterprises, can inter-
vene moderately in their business activities and development decisions to achieve policy
objectives (Qi, Lin, and Cui, 2018 [49]). From a resource perspective, green technology
innovation requires a greater resource supply compared to ordinary innovation. A critical
factor determining whether a company can successfully pursue green technology innova-
tion and the enthusiasm for doing so is the availability of corporate resources. In regions
where the institutional environment is weak and government officials do not act, corpo-
rate managers may use their political connections to obtain government support to obtain
undeserved resources and advantages while avoiding corporate environmental responsi-
bility (CER) (Zeng et al., 2019 [44]). Excessive government intervention can disrupt the
allocation of resources in the market and results in low producing efficiency (You, Zhang,
and Yuan, 2019 [50]). On the contrary, in environments with more sophisticated laws and
Sustainability 2024, 16, 4292 8 of 21

regulations and more comprehensive green-encouraging systems, enterprises can obtain

financial support through fair competition (Zeng et al., 2019 [44]). Besides, a good regula-
tion environment makes environmental-friendly companies more competitive ([44]). Our
examination of the state-owned enterprises will provide evidence for the situation of Chi-
nese green environment during our sample period.
Previous research holds mixed opinion concerning the impact of state-ownership on
corporate green innovation. Some studies (e.g., Choi, 2011 [11]) support that principal-
agent problems are more likely to occur in state-owned enterprises, leading to ambiguity
in ultimate ownership and conservative corporate decision-making, particularly regard-
ing green innovation with significant uncertainty in return rates. Fan et al. (2007) [51]
found that corporations with political connections tend to show inadequate growth and
underperform their counterparts. They argue that the probable explanation is that the
government can extract rent from these firms since their politically connected CEOs pay
more attention to their political career, which harms the firms’ long-term performance
(Wang et al., 2019 [45]; Fan et al., 2007 [51]). This stream of research supports that non-
state-owned enterprises may exhibit more active green innovation and higher innovation
efficiency (Choi, 2011 [11]).
Other scholars hold opposite opinions, as state-owned enterprises possess ad-
vantages over private enterprises, such as more resources, technology, and financial sub-
sidies. Niessen and Ruenzi (2010) [52] analyze firms in Germany and find that listed firms
with political connections outperform unconnected firms in both accounting performance
and market performance. Considering the long cycle and high risk associated with green
technology innovation projects, achieving performance through market-oriented ap-
proaches is challenging, especially in the short term. Hence, companies, particularly pri-
vate enterprises, face various difficulties in green technology innovation. State-owned en-
terprises have stronger ties with the government and state-owned banks, giving them an
absolute advantage in financing, financial subsidies, and technical aspects compared to
private enterprises. Chinese state-owned enterprises have more abundant resources and
higher research and development investments in technological innovation, as they can
more easily obtain tax incentives and national policy subsidies [45].
This paper aim to examine the application of Porter hypothesis in the Chinese A-
share market through investigating the role of state ownership in the relationship between
green investors and enterprises green innovation. If the Porter hypothesis holds, we
should observe more significant investor–innovation correlation among state-owned
firms. Otherwise, there should be no significant difference or the opposite result. There-
fore, we construct the following hypothesis:

H2. The presence of green investor holdings has a stronger positive effect on green technological
innovation in state-owned enterprises.

3. Data and Research Design

3.1. Data and Sample Selection
This research employs a dataset comprising A-share manufacturing firms listed on
the Chinese stock market between 2010 and 2019. Consistent with prior studies (e.g., Feng
and Yuan, 2024 [53]), we omit financial listed firms due to divergent corporate structures
and governance. Additionally, we exclude data from ST-type firms to prevent skewing
our findings. ST-type firms on the Chinese A-share market are companies that have re-
ceived a “Special Treatment” designation due to financial difficulties or irregularities.
These firms face increased regulatory scrutiny and may encounter trading restrictions,
signaling potential concerns about their financial health and stability. Investors should
exercise caution when considering investments in ST-type firms due to the associated
risks. Therefore, we do not take ST-type firms into consideration. Observations with miss-
ing data are also removed. The resultant sample comprises 10,100 firm-year observations.
Continuous variables are adjusted at the 1% level to address outliers.
Sustainability 2024, 16, 4292 9 of 21

We opted for the time frame of 2010–2019 to ensure data consistency and availability,
considering the emergence of green finance and the low-carbon economy in China during
this period. This window avoids major economic upheavals such as financial crises and
the pandemic, enhancing the relevance of our sample. The selection of A-share manufac-
turing companies is based on the following reasons. Firstly, these firms are central to
China’s economic growth but also contribute significantly to environmental pollution.
Secondly, amid the rise of green finance and the low-carbon economy, listed manufactur-
ing firms confront mounting environmental regulatory pressures, necessitating a shift to-
wards green innovation for survival and growth. Thirdly, manufacturing firms offer com-
prehensive data on green innovation, and its impact on their operations is substantial,
facilitating effective measurement of green innovation efforts.

3.2. Variables
Following the methodology of prior research (e.g., Lian et al., 2022 [1]; Wurlod and
Noailly, 2018 [54]), we utilize the number of granted green patents as a measure of green
innovation. We collect green investor data from the China Stock Market and Accounting
Research (CSMAR) database, which offers insights into fund themes and stock invest-
ments. By matching these datasets, we obtain each fund’s investment focus within A-share
manufacturing enterprises. We then scrutinize investment objectives and scope, identify-
ing funds emphasizing environmental protection, ecology, green development, and new
energy as green investors (Jiang et al., 2021 [9]).
For our independent variable, inspired by Barnea et al. (2005) [36], we construct a
binary indicator, taking the value of one if the corporation has green investors and zero if
otherwise.
Similar to previous studies (e.g., Lian et al., 2022 [1]), we include controls for various
firm characteristics that might influence green innovation. Specifically, we control for firm
size, return on assets (ROA), growth rate, debt ratio, board size, shareholding concentra-
tion, ownership type, and the proportion of independent directors. Table 1 presents the
definitions and measurements of all variables. Data of corporate green technology inno-
vation and other relevant company characteristics primarily come from the CSMAR data-
base, supplemented by manual collection from firm annual financial reports.

Table 1. Description of related variables.

Variable Type Symbol Name Description

Dependent varia- Green technology innova-
GPG Number of granted green patents by the enterprise
ble tion
Independent vari- Value equals 1 if the company has green investors and 0 if
GI Green investors
able otherwise
Share Ownership concentration The percentage of shares held by the largest shareholder
Value equals 1 if the actual controller is state-owned, and
Type Ownership structure
0 if otherwise
Size Firm size The logarithm of the total assets
ROA Profitability The net profit rate of total assets
Control variables Debt Debt level The ratio of total liabilities to total assets
Growth Growth The rate of growth in operating income
The natural logarithm of the number of board members
Board Board size
(plus one)
Proportion of independent
Indd The proportion of independent directors on the board
directors
Instrumental vari- The average green investor holding ratio of other manu-
Industry_GI
ables facturing companies
Sustainability 2024, 16, 4292 10 of 21

The average green investor holding ratio of other compa-

Province_GI
nies in the same province

3.3. Descriptive Statistics

Table 2 displays the descriptive statistics. The average ownership type is 0.123, indi-
cating that only 12.3% of the companies are state-owned enterprises. Given the theoretical
implications of ownership types, it is imperative to conduct a separate analysis for these
enterprises, i.e., a heterogeneity analysis.
The highest value for authorized green patents (gpg) is 9, while the lowest is 0, with
an average value of 0.331. This variance in green innovation among listed manufacturing
companies is evident.
The mean value for green investors is 0.371, indicating that 37.1% of the sample in-
cludes green investors. This highlights the notable influence green investors wield in the
market.

Table 2. Descriptive statistics of the sample.

Variable Observations Mean Std. Dev Minimum Maximum

GPG 10,100 0.331 1.252 0.000 9.000
GI 10,100 0.371 0.483 0.000 1.000
Share 10,100 33.470 14.170 8.500 74.020
Type 10,100 0.123 0.329 0.000 1.000
Size 10,100 22.070 1.213 19.220 25.370
ROA 10,100 0.030 0.076 −0.374 0.211
Debt 10,100 0.446 0.218 0.051 1.031
Growth 10,100 0.298 0.925 −0.777 6.875
Board 10,100 2.255 0.168 1.792 2.708
Indd 10,100 37.340 5.345 33.330 57.140
Industry_GI 10,100 1.534 1.341 0.076 3.795
Province_GI 10,100 1.534 1.954 0.000 26.470

3.4. Model Construction

To verify the hypothesis established in the previous section, this study establishes the
following econometric model:
𝐺𝑃𝐺 , = 𝛽 + 𝛽 ∗ 𝐺𝐼 , + 𝛽 ∗ 𝐶𝑜𝑛𝑡𝑟𝑜𝑙 , + 𝜇 + 𝜆 + 𝜀 . (1)
In this model, the dependent variable GPG serves as a proxy for corporate green tech-
nology innovation. Following existing research practices, we employ the number of au-
thorized green patents to measure this variable. The explanatory variable is the presence
of green investors (GI), which takes the value of 1 when green investors exist in the com-
pany and 0 when they do not. This paper considers bidirectional fixed effects, with λ
representing time effects and μ representing individual effects. Control variables are se-
lected based on existing research and include the following: shareholding concentration
(share), ownership type (type), firm size (size), profitability (ROA), growth potential
(growth), debt level (debt), board size (board), and the proportion of independent direc-
tors (Indd). Table 1 provides descriptions of the relevant variables.
Sustainability 2024, 16, 4292 11 of 21

4. Empirical Results and Analysis

4.1. Correlation Analysis
Table 3 displays the Pearson correlation coefficient matrix, illustrating the correlation
between pairs of variables and providing insight into their associations. The Pearson cor-
relation coefficient assesses the linear relationship between two variables, ranging from
−1 to 1. Values between −1 and 0 signify a negative linear relationship, while values be-
tween 0 and 1 denote a positive relationship. The magnitude of the coefficient indicates
the strength of the correlation.
Upon analyzing the correlation coefficients, it is observed that absolute values are
generally below 0.5, suggesting moderate correlations between different variables. Nota-
bly, the correlation coefficient between green investors (GI) and green innovation (gpg)
stands out, exhibiting a significant positive correlation at a 1% significance level, with a
coefficient value of 0.178. This result aligns with Hypothesis 1, indicating that the presence
of green investors is associated with stronger green innovation efforts.
Additionally, among the control variables, firm size (size) and green innovation (gpg)
demonstrate a significant positive correlation at a 1% significance level, implying that
larger firms tend to possess more robust green innovation capabilities. Furthermore, other
control variables such as ownership structure, debt level, board size, and the proportion
of independent directors also show positive correlations with green technology innova-
tion, highlighting significant interrelationships among them.

Table 3. Pearson correlation coefficient matrix.

GPG GI Share Type Size ROA Debt Growth Board Indd

GPG 1.000
GI 0.178 *** 1.000
Share 0.014 −0.052 *** 1.000
Type 0.030 *** 0.004 0.114 *** 1.000
Size 0.230 *** 0.389 *** 0.176 *** 0.200 *** 1.000
ROA 0.009 0.087 *** 0.146 *** −0.018 * 0.100 *** 1.000
Debt 0.058 *** −0.010 0.022 ** 0.122 *** 0.316 *** −0.372 *** 1.000
Growth −0.002 −0.009 0.029 *** 0.030 *** −0.037 *** 0.021 ** 0.051 *** 1.000
Board 0.040 *** 0.010 0.000 0.161 *** 0.191 *** 0.061 *** 0.075 *** −0.036 *** 1
Indd 0.045 *** 0.056 *** 0.046 *** −0.013 0.044 *** −0.053 *** 0.033 *** 0.014 −0.484 *** 1.000
Note: *, **, and *** indicate significance at the 10%, 5%, and 1% levels, respectively.

Table 4 presents the variance inflation factors (VIF) for each variable. In order to con-
duct a thorough analysis of the correlation among the chosen variables and identify any
potential issues of multicollinearity, we perform a multicollinearity test. The results re-
ported in the table indicate that the VIF for each variable pertaining to factors influencing
green innovation in A-share listed manufacturing firms is below 1.58, with an average VIF
of 1.27. Given that the VIF is below 10, it can be concluded that multicollinearity is not an
issue among the variables in this study.

Table 4. Multicollinearity test.

GI Share Type Size ROA Debt Growth Board Indd Mean

VIF 1.24 1.08 1.08 1.58 1.27 1.4 1.01 1.42 1.35 1.27
1/VIF 0.81 0.92 0.93 0.63 0.79 0.71 0.98 0.7 0.74

4.2. Main Regression Analysis

Table 5 displays the ordinary least squares (OLS) regression results for regression
Equation (1). Column (1) reports the empirical results without control variables and col-
umn (2) presents results with control variables. The regression outcomes reveal a
Sustainability 2024, 16, 4292 12 of 21

statistically significant positive correlation between green investors’ ownership (GI) and
green innovation (gpg) within Chinese A-share listed manufacturing firms.
Specifically, in the absence of control variables, the coefficients for GI and gpg are
0.158, demonstrating a significant positive correlation at a 1% significance level. Upon in-
corporating control variables, the coefficients become 0.149, still exhibiting a significant
positive correlation at a 1% significance level. Although the explanatory power of the sin-
gle variable experiences a slight decline after introducing control variables, this difference
is not statistically significant.
These results indicate that the ownership of green investors plays a constructive role
in fostering green innovation among manufacturing companies. The results support our
hypothesis 1.

Table 5. Green investors’ ownership and green innovation: main regression result.

Independent Variable: GPG (1) (2)

GI 0.158 *** (0.039) 0.149 *** (0.038)
Control No Yes
Year FE Yes Yes
Firm FE Yes Yes
N 10,100 10,100
Adjusted R2 0.029 0.031
Note: Standard errors are in parentheses. * p < 0.1, ** p < 0.05, *** p < 0.01 represent significance at
10%, 5%, and 1% respectively.

4.3. The Role of State Ownership

The empirical findings above affirm Hypothesis 1, suggesting that green investor
ownership bolsters the inclination towards green technological innovation in manufactur-
ing firms. Nonetheless, given the diversity in ownership structures among companies,
particularly the distinct attributes of state-owned enterprises with their common property
and stronger political ties, attitudes towards innovation, especially those with “green” at-
tributes, are expected to vary.
Thus, this study delves deeper into the similarities and discrepancies of Hypothesis
1 between state-owned and non-state-owned enterprises. Drawing on the existing litera-
ture studies (e.g., Jiang et al., 2021 [9]), this paper introduces an interaction term between
ownership form (type) and green investor presence (GI), denoted as Type_GI, and pro-
ceeds with a heterogeneity analysis, as outlined in Table 6. Column (1) showcases the out-
comes utilizing gpg as the metric for green innovation, while column (2) employs an al-
ternative measure of green innovation denoted as gpa. Further details regarding this al-
ternative measurement will be explained in Section 4.4.4.

Table 6. The role of state ownership in the relation between green investor and enterprises green
innovation.

(1) (2)
Dependent Variable: GPG GPA
GI 0.461 *** (0.025) 0.717 *** (0.049)
Type 0.111 *** (0.037) 0.364 *** (0.072)
Type × GI 0.170 ** (0.077) 0.448 *** (0.150)
Controls Yes Yes
Year FE Yes Yes
Firm FE Yes Yes
N 10,100 10,100
Adjusted R2 0.033 0.024
Sustainability 2024, 16, 4292 13 of 21

Note: Standard errors are in parentheses. * p < 0.1, ** p < 0.05, *** p < 0.01 represent significance at
10%, 5%, and 1% respectively.

The outcomes of the heterogeneity analysis reveal significant positive coefficients for
both the variables GI (green investors’ ownership) and type (ownership form) at the 1%
significance level, validating the premise of heterogeneity testing. Notably, the interaction
term (Type_GI) between state-owned enterprises (SOEs) and green investors’ ownership
(GI) exhibits a significant positive association.
When employing green innovation authorization (gpg) as the dependent variable,
the coefficient for the GI variable stands at 0.461, significant at the 1% level. Additionally,
the coefficient for the interaction term (Type_GI) is 0.170, significant at the 5% level. The
consistent sign of these two coefficients indicates that the impact of green investors’ own-
ership on fostering green technology innovation in manufacturing enterprises is more
pronounced in SOEs.
Similarly, when utilizing green innovation application (gpa) as the dependent varia-
ble, the coefficient for the GI variable is 0.717, significant at the 1% level. Moreover, the
coefficient for the interaction term (Type_GI) is 0.448, significant at the 1% level. Again,
the consistent sign of these coefficients underscores that in SOEs, the influence of green
investors’ ownership on promoting green technology innovation in manufacturing enter-
prises is stronger.
These results support Hypothesis 2 of the study, affirming that the impact of green
investors’ ownership on green technological innovation in manufacturing enterprises is
more pronounced in state-owned enterprises.

4.4. Further Analysis

The central concern in this study lies in the intricate relationship between companies
and investors. Given the inherent influence that companies and investors exert on each
other, the impact of green investors on companies may encounter endogeneity challenges.
From the perspective of the company itself, a firm with a strong commitment to social
responsibility, prioritizing environmental considerations in its development, and show-
casing proactive green innovation efforts, is likely to attract a greater number of green
investors. Furthermore, endogeneity issues such as sample selection bias and omitted var-
iables need to be taken into account.
To address these concerns, the study employs various methodologies, including the
substitution of variables, utilization of instrumental variables, and implementation of pro-
pensity score matching (PSM) for robustness checks. These approaches aim to mitigate
potential biases and enhance the reliability of the findings.

4.4.1. Instrumental Variable Method

The influence of green investors’ shareholdings on driving corporate green innova-
tion may entail endogeneity issues, particularly reverse causality. On one hand, compa-
nies exhibiting greater proactivity and advantages in green innovation are likely to attract
more green investors. Conversely, green investors might be influenced by certain unob-
servable factors associated with green innovation, leading to bidirectional causality, selec-
tion bias, omitted variables, and other endogeneity concerns.
To address these issues, this study adopts two instrumental variables: Industry_GI
and Province_GI. The first instrumental variable, Industry_GI, represents the average
green investor shareholding ratio of other companies in the same industry during the cur-
rent period. The second instrumental variable, Province_GI, denotes the average green
investor shareholding ratio of other companies in the same province as the focal company
(Jiang et al., 2021 [9]; Xie et al., 2009 [55]). Companies within the same industry or province
inherently confront similar external macro environments, such as the impact of certain
policies on the entire industry. Consequently, the green investor shareholding ratio of
Sustainability 2024, 16, 4292 14 of 21

other companies in the same industry or province exhibits a certain correlation with the
green investor variable.
Empirical results show no evidence indicating that the green investor shareholding
ratio of other companies in the same industry or province affects a company’s engagement
in green innovation. Hence, the investment scenario of other companies can be deemed
exogenous concerning a company’s level of green innovation. The results estimated using
the instrumental variable method are presented in Table 7.

Table 7. Green investors’ ownership and green innovation: instrumental variables regression.

(1) (2) (3) (4)

OLS 2SLS LIML
Dependent variable: GI GPG GPG GPG
GI 0.149 *** (0.030) 0.174 *** (0.061) 0.174 *** (0.061)
Industry_GI 0.144 *** (0.004)
Province_GI 0.006 ** (0.003)
Control Yes Yes Yes Yes
N 10,100 10,100 10,100
Adjusted R2 0.592 0.063 0.063
χ2(1) = 2.45662
Overidentification test
p = 0.1170
F(2,10,089) = 1130.3
Weak instrument test
p = 0.0000
Hausman test p = 0.0078
Note: Standard errors are in parentheses. * p < 0.1, ** p < 0.05, *** p < 0.01.

Table 7 presents the regression results from the instrumental variable approach,
alongside the corresponding overidentification test, weak instrument test, and Hausman
test outcomes. Column (2) displays the OLS regression results, column (3) shows the 2SLS
regression results, and column (4) exhibits the Liml regression results, all utilizing robust
standard errors.
From column (1), it is evident that the estimated coefficient of Industry_GI is signifi-
cantly positive at the 1% level of significance. Similarly, the estimated coefficient of Prov-
ince_GI is significantly positive at the 5% level of significance. The overidentification test
yields a p-value of 0.1170, indicating that the chosen instruments, Industry_GI and Prov-
ince_GI, are strongly exogenous. The weak instrument test indicates an F-value of 1130.3,
which exceeds 10, signifying the absence of weak instruments. Furthermore, the Liml re-
gression is conducted, and its results align with the 2SLS results.
Given that the use of instrumental variables assumes the presence of an endogenous
explanatory variable, the Hausman test is conducted to assess endogeneity. The Hausman
test result (p-value = 0.0078) confirms that the explanatory variable GI is indeed endoge-
nous in the equation.
After addressing endogeneity concerns, the coefficient of GI remains significantly
positive at the 1% level of significance. This indicates that the conclusion of this study
remains robust even after accounting for endogeneity.

4.4.2. Propensity Score Matching (PSM) Analysis

To mitigate potential issues like self-selection and selection bias, this study employs
a counterfactual framework by categorizing companies with green investors as the treat-
ment group and those without as the control group. Propensity score matching (PSM) is
then utilized to validate the hypothesis, leveraging four matching methods: Mahalanobis
distance matching, k-nearest neighbor matching, caliper matching, and kernel matching.
Each method serves to bolster the robustness of the research conclusions.
Sustainability 2024, 16, 4292 15 of 21

Mahalanobis distance measures the distance between a point and a distribution, with
Mahalanobis distance matching calculating the distance between each treated and control
unit in a multidimensional space defined by covariates. In k-nearest neighbor matching,
each treated unit is paired with its k nearest neighbors from the control group based on
propensity score or observed covariates. Caliper matching restricts potential matches for
each treated unit based on a specified caliper, representing the maximum allowable dis-
tance or difference in propensity scores or covariates between matched pairs. Kernel
matching assigns weights to control units based on their distance from treated units in a
kernel function.
The selection of matching method depends on the data’s specific characteristics and
the research question, as each method has its strengths and limitations. The overarching
goal of these methods is to create balanced treated and control groups, reducing bias and
enhancing the validity of causal inference in observational studies.
Following PSM implementation, the study conducts balance tests to ensure minimal
differences in covariates between matched treated and control groups, except for the pres-
ence of green investors. The results indicate successful matching, with a maximum sample
loss of 51 samples. Standardized bias of most variables significantly reduces after PSM,
with all variables exhibiting a standardized bias of less than 10%. Additionally, most t-test
results fail to reject the null hypothesis, indicating no systematic difference between the
control and treatment groups. These balance test outcomes are presented in Table 8.

Table 8. Balancing test results of explanatory variables before and after propensity score matching.

Matching Method Pseudo R2 LR Statistic Standardized Bias

Before matching 0.167 2229.18 17.5
Mahalanobis distance matching 0.002 25.53 2.2
k-Nearest neighbor matching 0.003 26.11 4.5
Caliper matching 0.002 19.44 3.5
Kernel matching 0.003 26.69 3.9

The balancing test outcomes reveal a substantial reduction in standardized biases of

explanatory variables post-PSM application. Prior to matching, the standardized biases
stood at 17.5%, decreasing notably to 2.2% and 4.5% after matching, both below the 20%
threshold. Additionally, the LR statistic experiences a considerable decline from 2229.18
pre-matching to 19.44 and 26.69 post-matching. Furthermore, the pseudo R-squared value
exhibits a notable drop from 0.167 before matching to 0.002 and 0.003 after matching.
These results collectively indicate that the four matching methods employed in this
study effectively mitigate covariate distribution disparities between the treatment and
control groups. Consequently, they successfully address potential estimation biases stem-
ming from sample self-selection, bolstering the validity and reliability of the study’s find-
ings.
Table 9 demonstrates that the research outcomes remain consistent across the four
distinct matching methods utilized in this study. Following counterfactual estimation, the
presence of green investor shareholding continues to exhibit a significant positive effect
on the green innovation performance of manufacturing firms. This reaffirms the validity
of Hypothesis H1.
Sustainability 2024, 16, 4292 16 of 21

Table 9. Average treatment effect on the treated (ATT) using propensity score matching (PSM).

Treatment Control Average Treatment Ef-

Matching Method Standard Error T-value
Group Group fect (ATT)
Mahalanobis distance matching 0.621 0.259 0.362 *** 0.0403 8.97
k-Nearest neighbor matching 0.604 0.255 0.292 *** 0.0446 9.55
Caliper matching 0.610 0.274 0.336 *** 0.0374 10.42
Kernel matching 0.610 0.275 0.335 *** 0.0335 10.38
Average 0.331
Note: * p < 0.1, ** p < 0.05, *** p < 0.01 represent significance at 10%, 5%, and 1% respectively.

4.4.3. Multiple Time-Point DID (Difference-In-Differences)

To further analyze the data, this study conducted a multi-period difference-in-differ-
ences (DID) regression on the matched samples obtained using different PSM methods.
Before conducting the multi-period DID, it is necessary to perform a balance trend test on
the sample, as shown in Figure 1.

Figure 1. Balanced trend analysis results.

Figure 1 presents the balanced trend test results. The year when green investors first
invest in a firm is time t. This study examines the three years before (t − 1, t − 2, t − 3) and
five years after (t + 1, t + 2, t + 3, t + 4, t + 5) the initial investment. Figure 1 shows a signif-
icant change in the firm’s green technological innovation after green investors’ invest-
ment. Moreover, green investor holdings have a significant positive impact on the firm’s
green technology innovation level, satisfying the parallel trend assumption.
To ensure the robustness of the research results, we conduct multiple time-point DID
regression analyses using samples obtained from different matching methods of PSM pro-
pensity score matching. The regression results are shown in Table 10.

Table 10. DID estimation results using alternative matching methods.

(1) (2) (3) (4)

Mahalanobis Distance k-Nearest Neighbor
Caliper Matching Kernel Matching
Matching Matching
GI 0.149 *** (0.040) 0.152 *** (0.041) 0.151 *** (0.040) 0.150 *** (0.040)
Control Yes Yes Yes Yes
Year FE Yes Yes Yes Yes
Firm FE Yes Yes Yes Yes
Sustainability 2024, 16, 4292 17 of 21

N 10,100 10,050 10,054 10,049

Adjusted R2 0.592 0.591 0.591 0.592
Note: Standard errors are in parentheses. * p < 0.1, ** p < 0.05, *** p < 0.01.

Table 10 presents the PSM–DID empirical results regarding the impact of green in-
vestor holdings on the green innovation of manufacturing enterprises. The estimation out-
comes indicate that Mahalanobis distance matching does not exclude any samples, while
nearest neighbor matching excludes 50 samples, caliper matching excludes 46 samples,
and kernel matching excludes 51 samples. Nonetheless, the coefficients for GI are signifi-
cantly positive at the 1% significance level across all four PSM matching methods. These
initial findings lend support to Hypothesis 1, suggesting that green investor holdings no-
tably enhance green technological innovation within enterprises.

4.4.4. Alternative Variable Method

Regarding the measurement of corporate green innovation levels, scholars often uti-
lize data on green patent grants or applications, given the comprehensive nature of green
patent data in recent years. In this study, the number of green patent grants (gpg) is
adopted as an indicator of corporate green innovation, as it accurately reflects a company’s
actual green innovation achievements from an objective standpoint. Conversely, the num-
ber of green patent applications (gpa) may better indicate the proactive nature of corpo-
rate innovation from a subjective perspective. Therefore, the study substitutes the depend-
ent variable with green patent applications (gpa) to conduct a robustness check.
Within the 1010 listed manufacturing companies analyzed in this study, the range of
green patent grants (gpg) varies from a minimum of 0 to a maximum of 9, indicating that
not all companies are engaged in green innovation. The volume of green patent grants
(gpg) serves as a measure of corporate green innovation from the perspective of specific
innovative outcomes. Accordingly, a dummy variable for green patent grants (gpg-
dummy) is generated, taking the value of 1 when a company has a green patent grant and
0 if otherwise. This dummy variable assesses corporate green innovation by examining
the presence of green patents, thereby investigating the promoting effect of green inves-
tors on corporate green innovation and conducting robustness tests.
Table 11 presents the regression results after employing the alternative variable
method. It reveals that the coefficients of GI remain significantly positive even after re-
placing gpg with gpa and gpg-dummy. As such, the conclusions drawn from the analysis
remain robust.

Table 11. Green investors’ ownership and green innovation: using alternative variables.

(1) (2)
Dependent Variable GPA GPG-Dummy
GI 0.147 ** (0.062) 0.192 *** (0.048)
Control Yes Yes
Year FE Yes Yes
Firm FE Yes Yes
N 10,100 10,100
Adjusted R2 0.031 0.040
Note: Standard errors are in parentheses. * p < 0.1, ** p < 0.05, *** p < 0.01 represent significance at
10%, 5%, and 1% respectively.

5. Conclusions and Discussion

With growing attention to the balanced development of economy and environmental
protection, as well as the strong promotion of green financial systems, “green” has become
one of the key development concepts. This concept extends not only to enterprises but
Sustainability 2024, 16, 4292 18 of 21

also to the perspective of investors. Institutional investors are pivotal players in financial
markets, exerting significant influence on China’s financial landscape and national econ-
omy. Despite the abundance of research on institutional investors, few studies categorize
them based on green investment criteria or analyze the impact of green investor holdings
on corporate technological innovation. Moreover, the existing literature tends to concen-
trate on the influence of institutional investors on enterprises or innovation in general,
without separating green innovation. This article aims to shed light on the impact of green
investors on enterprises green innovation.
Government policies, including those promoting green finance and sustainable de-
velopment infrastructure, exert direct pressure on enterprises, driving investments in en-
ergy efficiency and emissions reduction, highlighting the critical role of government in
fostering environmentally friendly practices and innovation within the corporate sector.
Given the significant influence of regulatory environments and government policies, we
aim to explore how state ownership may moderate the relationship between green inves-
tors and corporate green innovation. Our hypothesis posits that green investors stimulate
green innovation within companies, with this effect likely being more pronounced in
state-owned enterprises.
We hypothesize that green investors foster corporate green innovation activities and
expect this positive correlation to be more pronounced in state-owned enterprises. Ana-
lyzing 10,100 observations of manufacturing firms listed on Shanghai and Shenzhen A-
share market from 2010 to 2019, we conduct fixed effect regression analysis using number
of granted green patents of the firm as the proxy for green innovation. We controlled for
firm size, ROA, growth rate, debt ratio, board size, shareholding concentration, ownership
type, and the proportion of independent directors. Empirical result shows an increase in
green innovation with the entry of green investors. In addition, we find that this positive
association is more pronounced in state-owned enterprises. Our findings are robust to
instrumental analysis, propensity score matching analysis, multi-time-point difference-in-
differences (DID) test, and alternative measurement tests.
Our study contributes to the literature on institutional investors’ influence on corpo-
rate innovation activities, especially from the perspective of green investors who values
environmental performance. Our research separates green innovation from general tech-
nological innovation, contributing to the literature on corporate innovation. We propose
a stimulating effect of green investors on enterprises’ green innovation, indicating that
China has a relatively strong and stable environmental regulation system. This study also
contributes to the literature examining the role of state ownership on green innovation.
The empirical result provides evidence supporting the Porter hypothesis, indicating that
the profitability from green innovation offsets or even excesses the compliance costs asso-
ciated with environmental regulation.
This paper has certain limitations. For instance, we did not include the phenomenon
of greenwashing in our analysis (We thank our reviewer for pointing this out for us.).
Greenwashing in environmental, social, and governance (ESG) activity refers to the prac-
tice of misleadingly portraying a company or its products as environmentally friendly or
socially responsible, when in reality, they may not be (Lee and Raschke, 2023 [56]). This
can involve exaggerated or false claims about the company’s environmental practices, so-
cial initiatives, or corporate governance policies. Greenwashing is often used as a market-
ing tactic to appeal to consumers who prioritize sustainability (Lyon and Montgomery,
2015 [57]), but it can undermine trust and transparency in ESG reporting and investment
decisions [56]. Future research could explore the impact of greenwashing on green inno-
vation and subsequent firm performance.
This study provides suggestions for the construction of China’s green financial sys-
tem and the high-quality sustainable development of enterprises: firstly, green investors
themselves should be aware of their ability to influence enterprises, and actively conduct
research activities and participate in online or offline communications to engage in corpo-
rate decision-making. Secondly, enterprises should have a sense of social responsibility,
Sustainability 2024, 16, 4292 19 of 21

actively engage in relevant green technology innovation, and enhance the long-term value
of the enterprise. Finally, the government should pay attention to the guidance of relevant
policies, cultivate more green investors, support enterprise green technology innovation,
and play the role of state-owned enterprises, actively realizing the dual value of state-
owned enterprises.

Author Contributions: Conceptualization, Y.X.; Methodology, L.Z.; Software, L.Z.; Formal analysis,
D.X.; Investigation, Y.X. All authors have read and agreed to the published version of the manuscript.
Funding: This research received no external funding.
Institutional Review Board Statement: Not applicable.
Informed Consent Statement: Not Applicable.
Data Availability Statement: Data used in this study are accessible at https://wrds-www.whar-
ton.upenn.edu/.
Conflicts of Interest: The authors declare no conflict of interest.

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