The effects of institutional investors on firms' green innovation

Stakeholder theory suggests that institutional investors, as firms' vital stakeholders, might play a crucial role in influencing firms' green innovation. Considering both the shareholding and portfolio characteristics of institutional investors, we investigate the effects of different types of institutional investors with various supervisory motivations and governance capabilities on firms' green innovation. Importantly, we also explore which types of institutional investors become the driving force behind firms' green innovation. Furthermore, we consider how various aspects of financial and social benefits as contingencies affect the relationship between different types of institutional investors and firms' green innovation. Based on 5473 observations of Chinese manufacturing firms from 2013 to 2019, we find that, when considering institutional investors' effects on firms' green innovation, it is better to simultaneously consider both the shareholding and portfolio characteristics of institutional investors than to consider only one or the other. Dedicated institutional investors with more shareholding independence and higher portfolio concentration are positively associated with green innovation and are the driving force behind it, while transient institutional investors are not. However, institutional investors' effects on green innovation will change because of contingencies related to firms' financial and social benefits, generally presenting the characteristics of "pursuing benefits and avoiding risks." Specifically, dedicated institutional investors promote green innovation for firms with satisfactory financial and social benefits to pursue long-term benefits but do not have significant effects on the green innovation of firms with general or unsatisfactory financial and social benefits. By contrast, transient institutional investors are inclined to hinder green innovation for firms with unsatisfactory financial and social benefits to avoid short-term risks; at the same time, they have insignificant effects on the green innovation of firms with satisfactory or general financial and social benefits.