Toxic Emissions and Corporate Green Innovation

This paper examines the relation between firms’ toxic emissions and green innovation. Consistent with a demand-based explanation, we show that companies with high toxic release levels produce more green patents that are of a higher quality and value than those produced by firms with low toxic emission levels. We find a strong desire among high-emission firms to bring about meaningful change in their green credentials, as they generate more climate change mitigation (CCM)-related green patents and use explorative innovation strategies. Causality is further identified by exploiting two exogenous shocks: the election of U.S. President Trump and the BP Deepwater Horizon oil spill. Finally, we show that while a low level of asset redeployability impedes polluting firms from producing green patents, financial constraints do not seem to affect green innovation