The relationship between green product innovation and accounting-based financial performance: insights from non-linear modeling

Linh-TX Nguyen

Meditari Accountancy Research, 2025, vol. 33, issue 3, 910-928

Abstract: PurposeThis 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.Design/methodology/approachReturn 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.FindingsThe 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.Originality/valueThe 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.

Keywords: East Asia; Green product innovation; Return on assets; U-shaped (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:medarp:medar-09-2023-2145

DOI: 10.1108/MEDAR-09-2023-2145

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