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.
Authors
- Dinh Hoang Bach Phan (ORCID: https://orcid.org/0000-0001-5096-6530)
- Md. Nurul Kabir (ORCID: https://orcid.org/0000-0003-3547-9886)
- Md Safiullah (ORCID: https://orcid.org/0000-0001-8342-9889)
Institutions
- North South University (BD)
- La Trobe University (AU)
- RMIT University (AU)
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