Green innovation and shareholder litigation rights
•We investigate the adoption of staggered passage of the Universal Demand Laws on the environmental innovation scores over the period of 2002 to 2016.•The difference-in-differences regressions show the negative relationship between the firms in each state adopting the Universal Demand Laws and their...
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Veröffentlicht in: | Finance research letters 2024-04, Vol.62 (1), p.1-7, Article 105130 |
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Format: | Artikel |
Sprache: | eng |
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Zusammenfassung: | •We investigate the adoption of staggered passage of the Universal Demand Laws on the environmental innovation scores over the period of 2002 to 2016.•The difference-in-differences regressions show the negative relationship between the firms in each state adopting the Universal Demand Laws and their environmental innovation scores.•An increase in a one-standard deviation of environmental innovation score is associated with a 75 % reduction in the environmental innovation score.•Our findings are supported by the pressure hypothesis, which the reduction of litigation rights of shareholders to managers does not promote environmental innovation, as managers focus more on short-term performance and do not want to commit in a risky, complicated, and time-consuming green innovation projects.•This is also explained by the managerial myopia and the quiet life hypothesis.
We rely on the staggered adoption of the Universal Demand Laws, which led to an exogenous decline in derivative litigation risk, as a quasi-natural experiment to explore the relation between shareholder-initiated litigation risk and a firm's green innovation. Consistent with the pressure hypothesis, we show that our difference-in-differences coefficient estimates implying that an exogenous reduction in the threat of derivative litigation economically and significantly reduces a firm's green innovation by 75 %. Making it harder for shareholders to file a lawsuit against top management intensifies agency costs, pressuring managers become more risk-averse and avoid investing in long-term projects such as green innovation. |
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ISSN: | 1544-6123 |
DOI: | 10.1016/j.frl.2024.105130 |