This study aims to investigate the non-linear relationship between green product innovation and accounting-based financial performance in emerging East Asian economies. Specifically, this research explores how green product innovation affects financial performance through both cost-saving and productivity improvement effects.
Return on assets (ROA) is used to measure accounting-based financial performance. Using DuPont analysis, the author decompose ROA into two components: return on sales (ROS) to capture the cost-saving effect and asset turnover (AT) to capture the productivity improvement effect. Fixed-effects regressions are applied to analyze panel data from 409 non-financial listed firms in emerging East Asia from 2015–2019. To ensure robustness, the author uses a two-step generalized method of moments estimator to address potential endogeneity issues.
The author demonstrates a significant U-shaped relationship between green product innovation and ROA, with an initial decline in ROA followed by a subsequent increase. Additionally, the author observe a linear positive correlation between green product innovation and ROS, while the relationship between green product innovation and AT is non-linear and U-shaped. The analysis reveals that green product innovation may initially decrease ROA due to lower productivity, but it ultimately boosts total profitability through cost savings and productivity improvement.
The study advances the existing literature by exploring how cost-saving and productivity improvement effects contribute to a more detailed understanding of the U-shaped relationship between green product innovation and financial performance in emerging East Asia.
