Does Size Matter for Green Growth? Endogenous Size Thresholds in the Eco-Innovation–Performance Nexus

This study addresses the critical question of when green investments pay off by investigating how firm size generates asymmetric threshold effects in the relationship between eco-innovation and corporate financial performance. While prior research reports mixed findings, most studies rely on linear specifications that overlook structural breaks across firm scales. Using a dynamic panel threshold regression model on a global sample of 383 non-financial firms (3830 firm-year observations) from 2013–2022, we endogenously identify divergent size thresholds for operational (ROA) and shareholder (ROE) performance. Our findings unveil a significant regime-switching dynamic: for ROA, the positive impact of eco-innovation is confined to firms below the 20.106 threshold, turning marginally negative at larger scales due to coordination and complexity costs. In striking contrast, for ROE, eco-innovation initially imposes a financial burden on smaller firms but becomes a significant value driver once the 21.497 ‘critical mass’ threshold is surpassed. These asymmetric thresholds reconcile prior contradictory evidence by demonstrating that financial outcomes are strictly regime-dependent. The study advances the Natural Resource-Based View by uncovering scale-dependent capability thresholds and provides size-contingent implications for managers and policymakers to mitigate the “liability of smallness” through targeted support and to maximize the financial viability of green transitions.