Green innovation and corporate default risk

We investigate the impact of green innovation on default risk for the period 2003–2020. Using 15,015 firm-year observations from 2301 unique U.S. firms and a firm-fixed effects regression model, we find that firms with higher green-innovation experience lower default risk as measured by the distance-to-default, probability of default, and CDS spreads. We find robust evidence addressing potential endogeneity in the association between green innovation and default risk by applying three different approaches: the propensity score matching approach, the instrumental variable approach, and the difference-in-differences technique. Our channel analysis results show that high green innovation reduces cashflow volatility and managerial risk-taking, which translates into lower default risk. The influence of green innovation on default risks is contingent on various firm characteristics. It is more pronounced in firms with greater institutional ownership, a younger age, and more carbon-intensive operations.

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Publication Details

Journal
Journal of International Financial Markets Institutions and Money
Published
2024-08-05
DOI
https://doi.org/10.1016/j.intfin.2024.102041
Citations
25
Primary Topic
Corporate Finance and Governance
Type
article
Field-Weighted Citation Impact
23.66
Controls
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article

Green innovation and corporate default risk

Dinh Hoang Bach Phan, Md. Nurul Kabir, Md Safiullah
25 citations
Journal of International Financial Markets Institutions and Money
Corporate Finance and Governance
23.66
article

Green innovation and corporate default risk

Dinh Hoang Bach Phan, Md. Nurul Kabir, Md Safiullah
article en
25 citations

Abstract

We investigate the impact of green innovation on default risk for the period 2003–2020. Using 15,015 firm-year observations from 2301 unique U.S. firms and a firm-fixed effects regression model, we find that firms with higher green-innovation experience lower default risk as measured by the distance-to-default, probability of default, and CDS spreads. We find robust evidence addressing potential endogeneity in the association between green innovation and default risk by applying three different approaches: the propensity score matching approach, the instrumental variable approach, and the difference-in-differences technique. Our channel analysis results show that high green innovation reduces cashflow volatility and managerial risk-taking, which translates into lower default risk. The influence of green innovation on default risks is contingent on various firm characteristics. It is more pronounced in firms with greater institutional ownership, a younger age, and more carbon-intensive operations.

Journal of International Financial Markets Institutions and MoneyVol. 95
North South University (BD), La Trobe University (AU), RMIT University (AU)
Industry, innovation and infrastructure
Openalex Percentile: Top 0%
Corporate Finance and Governance
23.66
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