Does corporate governance induce green innovation? An emerging market evidence

Abstract

PurposeThis study aims to investigate the effect of corporate governance (CG) mechanisms (board size, independent commissioner and ownership concentration) on green innovation (GI) in publicly traded companies of Indonesia as an emerging market.Design/methodology/approachArchival data relating to CG and GI were collected for five years (2016–2020). A total of 640 observations were obtained and analyzed using a random effect model.FindingsThe results indicate that effective governance mechanisms can encourage GI implementation to promote company sustainability. Respectively, the board size, independent commissioner and ownership concentration positively and significantly affect GI. These results imply that the optimal board size will result in effective coordination and cooperation in making GI decisions. Likewise, the proportional independent commissioners in the board structure will serve an effective oversight function. And concentrated ownership can influence executives to prefer innovation policies, such as GI.Research limitations/implicationsFirst, only a few CG mechanisms were used in this investigation. Therefore, further research needs to consider other mechanisms such as the number of commissioners, internal and external commissioners. Second, this research focused solely on Indonesia as an emerging market. Future research can be expanded to include countries with other emerging market characteristics. Third, different GI measurements from this study should be considered in future studies.Practical implicationsPractically, the results of this study are expected to provide policy recommendations, including optimizing the CG mechanisms as a control tool to achieve organizational sustainability through GI according to stakeholder expectations. This can be achieved by optimizing the size of the board of directors. The low value of the board size coefficient implies that optimization of board size is needed to encourage GI. The company can gain directors’ competence, experience and skill to increase innovation performance. In addition, maximizing the role of independent commissioners in overseeing is required for continuous innovation activities. Finally, the control of large shareholders is also necessary to encourage the implementation of GI because they could influence management to make innovative decisions.Originality/valueThis study extends and contributes to the extant CG and GI literature. There is little evidence that reveals how CG mechanisms affect GI, particularly in emerging market settings. The findings offer some important evidence for improving CG in driving GI implementation.