Enhancing Sustainability: The Impact of Research and Development Expenditure on Future Environmental Innovation in European Firms

Vincent O’Connell, Naser M. AbuGhazaleh (), Oliver Browne, Mike Farrell, Michelle Gleeson and Eimear McGeown
Additional contact information
Vincent O’Connell: Department of Accounting and Finance, Cork University Business School, University College Cork, T12 YN60 Cork, Ireland
Naser M. AbuGhazaleh: Department of Accounting and MIS, College of Business Administration, Gulf University for Science & Technology, Mubarak Al-Abdullah P.O. Box 7207, Kuwait
Oliver Browne: Department of Accounting and Finance, Cork University Business School, University College Cork, T12 YN60 Cork, Ireland
Mike Farrell: Department of Accounting and Finance, Cork University Business School, University College Cork, T12 YN60 Cork, Ireland
Michelle Gleeson: Department of Accounting and Finance, Cork University Business School, University College Cork, T12 YN60 Cork, Ireland
Eimear McGeown: Department of Accounting and Finance, Cork University Business School, University College Cork, T12 YN60 Cork, Ireland

Sustainability, 2025, vol. 17, issue 12, 1-21

Abstract: Sustainability is key to our collective future, and environmental innovation is essential in integrating sustainability within organizations. Relatedly, theoretical insights from the resource-based view of the firm suggest that Research and Development (R&D) focused on environmental innovation is a key enabler of the development of unique knowledge-based assets. In this study, we integrate these insights to develop a hypothesis which predicts that current-period R&D expenditure is a significant driver of future environmental innovation. We test this prediction using a database comprising firms from eight European countries over the period 2003–2020. Our empirical findings, utilizing a random-effects estimation model employing controls for heterogeneity across firms, time, and countries, offers strong empirical support for this hypothesis and are strongly robust to alternative estimation methodologies. Furthermore, building on the absorptive capacity literature, we hypothesize and demonstrate that firm age positively moderates this relationship, indicating that experienced firms leverage R&D more effectively for future environmental innovation. Conversely, we hypothesize and demonstrate that relative R&D investment (measured using the R&D expenditure to capital expenditure ratio) negatively moderates the R&D–environmental-innovation relationship, highlighting the risk of R&D overinvestment in this domain. Our findings offer unique insights for C-level executives, policymakers, and researchers, demonstrating that while R&D is a key driver of future environmental innovation, its effectiveness is enhanced by firm experience, but can also be diminished by excessive R&D investment.

Keywords: sustainability; environmental innovation; Research and Development expenditure; firm age; absorptive capacity; Research and Development overinvestment; financial reporting for Research and Development; open innovation (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2071-1050/17/12/5412/pdf (application/pdf)
https://www.mdpi.com/2071-1050/17/12/5412/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:17:y:2025:i:12:p:5412-:d:1677081

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().