“Less is less” or “Less is more”? Financial constraints and green innovation in a global context

Md. Nurul Kabir, Mohammad Dulal Miah, Sohanur Rahman, Md. Samsul Alam and Tapan Sarker

Journal of Accounting & Organizational Change, 2026, 1-30

Abstract: PurposeThis study aims to investigate the theoretically ambiguous relationship between financial constraints and green innovation. The resource-based view holds that financial frictions impede green innovation by restricting investment in costly, risky technologies (“less is less”), whereas the induced innovation hypothesis argues that these constraints can spur creativity and adaptive problem solving, thereby enhancing green innovation (“less is more”).Design/methodology/approachThis study uses the ordinary least squares (OLS) method to analyze 2,750 firms across 44 countries for the 2005–2021 period. In addition, propensity score matching, firm fixed effects, change regression and lead-dependent variable techniques are applied to address potential endogeneity concerns.FindingsResults show that financial constraints reduce firms’ green innovation, supporting the “less is less” hypothesis. The effect is more pronounced among firms in countries with higher economic development, weak national governance and lax environmental policy enforcement. Reduced environmental expenditure and poor workforce wellbeing channel the effect. Institutional ownership and strong corporate governance reduce the adverse impact of financial constraints on green innovation.Practical implicationsThis study suggests how financial constraints hinder green innovation. Specifically, the conditions under which financial constraints undermine corporate responses to climate change are clarified.Originality/valueCross-country empirical evidence of the impact of financial constraints on green innovation is scarce. This study provides valuable insights by presenting comprehensive, cross-country empirical evidence. In addition, moderation analysis offers new insights into how various factors shape the relationship between financial constraints and environmental innovation.

Keywords: Green innovation; Financial constraints; Ownership structure; Corporate governance (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jaocpp:jaoc-07-2025-0246

DOI: 10.1108/JAOC-07-2025-0246

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