A fish rots from the head down: The contagion effect of upstream firms’ environmental misconduct on downstream firms’ green innovation continuity

Hong, Jifeng and Kazakis, Pantelis and Strieborny, Martin (2024): A fish rots from the head down: The contagion effect of upstream firms’ environmental misconduct on downstream firms’ green innovation continuity.

Abstract

As economic integration advances, the interdependence between upstream and downstream firms within the supply chain intensifies. Using data from Chinese listed firms (2010–2023), we examine the impact of suppliers’ environmental misconduct on downstream firms’ green innovation continuity. We show that suppliers’ environmental misconduct significantly undermines downstream firms’ green innovation continuity. In addition, suppliers’ environmental misconduct lowers downstream executives’ green cognition and increases financial constraints, reducing green innovation continuity. Further, greater bargaining power in downstream firms mitigates the negative impact of suppliers’ environmental misconduct, while closer geographic proximity amplifies its harm to green innovation continuity. Moreover, we find that China’s 2015 environmental protection law curbed suppliers’ environmental misconduct, boosting green innovation continuity in downstream firms. Finally, talent introduction policies enhance green innovation continuity, though this effect is weakened by suppliers’ environmental misconduct. Our findings add to the green supply chain literature, provide a perspective of green innovation continuity for corporate governance, and expand research on the impact of exogenous policies and environmental regulations on firms.

• Item Type: MPRA Paper
• Language: English
• Keywords: supply chain relationships; supply chain information transmission; environmental misconduct; green innovation continuity; green policy; financial constraints
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L14 - Transactional Relationships ; Contracts and Reputation ; Networks; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q51 - Valuation of Environmental Effects; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q55 - Technological Innovation

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