How Do Active Firms Implementing Corporate Environmental Responsibility Take Technological Approaches to Environmental Issues? A Resource-Allocation Perspective

Abstract

In this study, we acknowledge that corporate environmental responsibility (CER) can be implemented in a strategic sense. Given that firms cope with their resource constraints to pursue competitive advantages, firms tend to consider CER activities as a cost they expend rather than a value they invest. This tendency determines the level of investments to develop specific technologies to deal with environmental issues. Accordingly, we conjecture that the level of CER activities (i.e., the extent to which firms engage in various environmental issues) is negatively related to environmental innovation (i.e., the extent to which firms develop environmentally-sound technologies). To test this counterintuitive idea, we sample 623 U.S. public firms between 1996 and 2010 and figure out the relationship between CER and environmental innovation. As a result, we find a trade-off between CER and environmental innovation. In addition, to elaborate the resource-enabling mechanism between CER and environmental innovation, we examine the moderation effects of slack resources (instantiated by current ratios and debt-equity ratio) and find that the moderators show a positive impact on the relationship between CER and environmental innovation. These results suggest that environmental innovation is a dedicated action firms can take for environmental issues and is not automatically derived from their prior CER activities.