Litigation risk and corporate reputation in emerging market: the role of green innovation

Kainat Iftikhar (), Can Yang () and Tanveer Bagh ()
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Kainat Iftikhar: Xiamen University, School of Management
Can Yang: Central University of Finance and Economics, Chinese Academy of Finance and Development

Risk Management, 2026, vol. 28, issue 1, No 5, 41 pages

Abstract: Abstract This study investigates the effect of litigation risk on corporate reputation and explores whether green innovation and sustainability governance moderate this relationship, using a dataset of Chinese listed firms from 2016 to 2022. The results reveal that litigation risk significantly undermines corporate reputation by heightening legal compliance and governance quality concerns. However, firms with stronger green innovation capabilities experience reduced reputational damage, as such initiatives signal environmental responsibility and regulatory alignment. We apply dynamic panel Generalized Method of Moments and propensity score matching techniques to address endogeneity and selection bias. Cross-sectional heterogeneity analysis further shows that non-state-owned enterprises and financially constrained firms are more susceptible to reputational harm from litigation exposure. We extend the analysis by incorporating Enterprise Risk Management frameworks, using stock return volatility as risk-adjusted performance indicators. Results also show that CSR Committees significantly mitigate the adverse effects of litigation risk on reputation and financial stability, acting as effective internal governance mechanisms. These findings offer important insights for managers and policymakers seeking to strengthen reputation and resilience through legal risk management and sustainable innovation.

Keywords: Litigation risk; Corporate reputation; CSR committee; Green innovation (search for similar items in EconPapers)
JEL-codes: G2 G32 L14 O3 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1057/s41283-025-00183-7

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