Outward foreign direct investment and corporate green innovation: An institutional pressure perspective

Abstract

Purpose: Institutional theory is a reasonable explanation for the motives of corporate social responsibility (CSR) behaviours (e.g. corporate green innovation). The existing literature defines institutional pressure as threats for legitimacy when firms operate within a country or a region; one area that has received little attention is the situation when a firm extends its operations across borders to pursue internationalisation. The study investigates the impact of outward foreign direct investment (OFDI) on green innovation at the firm level. Design/methodology/approach: The zero-inflated negative binomial regression models are estimated to analyse the data collected from 2065 manufacturing enterprises listed in China during 2007–2017 ( n = 14 129). Green innovation is measured by the number of green patents, according to the World Intellectual Property Organization (WIPO) International Patent Classification (IPC) Green Inventory. Findings/results: The findings show that OFDI is positively associated with green innovation for emerging market enterprises (EMEs). Furthermore, compared with investment in emerging economies, OFDI in developed economies has a stronger positive relationship with corporate green innovation. The positive effect of OFDI on corporate green innovation will be higher for EMEs located in sub-national regions (i.e., province of the home country) with lower levels of institutional development. Practical implications: Emerging market enterprises should overcome organisational inertia and compete in a broader market to enhance their awareness and ability of green innovation. Originality/value: This article contributes to the existing literature by exploring institutional pressure faced by EMEs when they operate overseas (e.g. OFDI) can play a significant role in influencing green innovation, and enriches our understanding of EMEs’ inclination towards CSR (e.g. green innovation) in the context of internationalisation.