Do Green Dynamic Capabilities and Absorptive Capacity Affect Green Innovation Performance? A Study on Companies in Indonesia

Purpose: This study aims to empirically analyze the effect of absorptive capacity, green dynamic capability, and green manufacturing practices (GMP) on green innovation performance (GIP). Design/methodology/approach: A quantitative approach was employed in this study, with data collected through a questionnaire and analyzed for hypothesis using the partial least squares structural equation model. We conducted in-depth interviews with experienced professionals from three selected companies that have implemented innovative green practices to enhance the depth of the research. Findings: Empirical findings showed that reconfiguring capabilities positively affect GIP. Realized absorptive capacity positively affects GMP but does not affect GIP. Then, realized absorptive capacity positively impacts sensing and reconfiguration capabilities. GMP mediates the relationship between realized absorptive capacity and GIP. This study reveals the two pathways through which green dynamic capabilities affect realized absorptive capacity and GIP. Research limitations/implications: This study has yet to consider potential variations in company ownership, applied technology, and industry type that could lead to differences in green innovation characteristics. This study employed a small sample size and a Likert-scale questionnaire, possibly leading to respondent perception bias (although this is unlikely). Practical implications: The results of this study offered valuable insights into how companies developed dynamic capabilities to address essential green requirements in their product and processes. Thus, companies can prepare all available resources to adapt to various environment -related changes. Social implications: Companies with high green innovation performance will produce environmentally friendly products, conduct industrial activities without damaging the environment, and ultimately create a sustainable industry. Originality/value: This study differs from previous research in decomposing green dynamic capabilities into three distinct capabilities: Sensing, Seizing, and Reconfiguring. In previous research, these capabilities were described as a single capability. Additionally, this study highlights the position of GMP between absorptive capacity and green dynamic capabilities with GIP.