One size doesn’t fit all: How institutional complexity within the state shapes firms’ environmental innovation

• DOI: http://doi.org/10.1111/beer.12280
• Date: 01 July 2020
• Author: Xin Pan,Yucheng Zhang,Haojing Guo,Xuanjin Chen
• Published date: 01 July 2020

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  wileyonlinelibrary.com/journal/beer Business Ethics: A Eur Rev. 2020;29:438–450.© 2020 John Wiley & Sons Ltd

1 | INTRODUCTION

Given the press ing tensions bet ween humanki nd and the envi-

ronment, fir ms worldwide ar e investing more r esources in eco-

logically res ponsible behav iours (Wang, W ijen, & Heugens , 2018),

including responsibility reporting (Pucheta-Martínez, Bel-Oms , &

Olcina-Semper e, 2019), environmental certifi cation (Duanmu, Bu, &

Pittman, 2018) an d innovation (Lia o, 2018), among others . Among

all these endeavours, environmental innovation (also termed green

innovation), which i s defined as a curtailme nt of the ecological foot-

print of humans and t he easing of tensio ns between hum ankind

and the environm ent (Liao, 2018), has at tracted sch olars’ attent ion

as it has double ex ternalities i n solving enviro nmental prob lems

(Rennings, 20 00) that may allow firms not onl y to reconstruct their

production m ode but also to control the poll ution and resource use

(Liao, 2018). Becau se environment al innovation may n ot “translate

into higher willingness-to-pay by consumers” in emerging countries

(Duanmu et al., 2018 , p. 3,010), research on environment al innova-

tion turns to the s tate as an import ant facilitator in shap ing firms’ en-

vironmental s trategies (Jamali & Mirs hak, 2007). However, previous

studies exhib it mixed findin gs on the roles of gove rnment in firms ’

environmental innovation.

While previous s tudies offer us import ant insights into the roles

of government in envir onmental innovation, they t reat its influence

as monolithic , consisting of th e consistent mand ate that corpor a-

tions should re spond. However, recent re search has revea led that

the Chinese gover nment is a multi-laye red entity tha t consists of

different adm inistrative levels such as cent ral government and local

government, whi ch may lead to divergent policy prio rities to which

firms must res pond (Wang et al., 2018). For example, Z heng (2007)

Received: 14 Novemb er 2018 

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  Revised: 26 Februa ry 2020 

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  Accepted: 6 March 20 20

DOI: 10 .1111/bee r.12280

ORIGINAL ARTICLE

One size doesn’t fit all: How institutional complexity within the

state shapes firms’ environmental innovation

Xin Pan1 | Xuanjin Chen2 | Haojing Guo2 | Yucheng Zhang3

1School of Business Administration,

Southweste rn University of Fi nance and

Economics, Chengdu, China

2School of Econo mics and Manageme nt,

Tsinghua University, Beijing, China

3School of Econo mics and Manageme nt,

Hebei Univer sity of Technology, Tia njin,

China

Correspondence

Haojing Guo, S chool of Economics a nd

Management, Tsinghua University, Beijing,

China.

Email: guohj.16@sem.tsinghua.edu.cn

Yucheng Zhang, S chool of Economics

and Management, Hebei University of

Technology, Tianjin, China.

Email: yucheng.eason.zhang@gmail.com

Funding information

Fundamenta l Research Funds for th e

Central Universities, Grant/Award Number:

JBK2001018; N ational Natural Sc ience

Foundation of China, Grant/Award Number:

71602163; Young Scientis ts Fund from the

Ministry of E ducation of Humani ties and

Social Scien ces Project in Chin a, Grant/

Award Number : 16YJC630171

Abstract

This study investig ated how firms respo nd to conflicting dem ands within the st ate.

Using Chinese listed f irms data, we found that firms linked with cent ral government

relate positively to envir onmental innovatio n, while firms loc ated in provinces with

gross domestic pr oduct (GDP) priori ty exhibited a neg ative influence on enviro n-

mental innovation. Beyond the independent roles of central and local government

expectation s, we found that central a nd local government d emands work interde-

pendently to negatively affect firms’ environmental innovation, such that firms lo-

cated in GDP priori ty regions lower the p ositive impact of the ce ntral government

on environmental in novation. The prese nt study added to t he existing literat ure by

unpacking government r oles into two competing sets of exp ectations, independ ently

and interdependently.