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Environmental regulations and capital investment: Does green innovation allow to grow?

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  • Farooq, Umar
  • Wen, Jun
  • Tabash, Mosab I.
  • Fadoul, Modawi

Abstract

With rising pollution emissions, it is vital to devise regulatory policies that ensure sustainable development. Green innovation offers an alternative strategy, fostering economic progress and environmental sustainability. While existing literature supports the positive role of green innovation in firm-level decisions, its specific impact on alleviating environmental regulation pressures remains unexplored. This study aims to fill that gap by investigating the role of green innovation in the nexus between environmental regulations and capital investment. It analyzes a 10-year dataset (2010–2019) of publicly listed enterprises from 10 Asian economies. The empirical results indicate a significant negative relationship between environmental regulations and investment decisions. It further shows the positive impact of environmental regulations on green innovation. The current analysis suggests green innovation's positive moderating/mediating impact on the relationship between environmental regulations and capital investment. The results support Porter's win-win model and recommend sound policies to environmental economists and industry managers regarding the significance of green innovation in environmental sustainability and corporate investment.

Suggested Citation

  • Farooq, Umar & Wen, Jun & Tabash, Mosab I. & Fadoul, Modawi, 2024. "Environmental regulations and capital investment: Does green innovation allow to grow?," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 878-893.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pa:p:878-893
    DOI: 10.1016/j.iref.2023.08.010
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