Are operationally efficient firms greener?

Zhao Wang (), Yuanlu Suo (), Taining Wang () and Subal C. Kumbhakar ()
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Zhao Wang: Capital University of Economics and Business, International School of Economics and Management
Yuanlu Suo: Capital University of Economics and Business, International School of Economics and Management
Taining Wang: Capital University of Economics and Business, International School of Economics and Management
Subal C. Kumbhakar: Binghamton University, Department of Economics

Empirical Economics, 2025, vol. 69, issue 5, No 5, 2627-2669

Abstract: Abstract Green innovation is crucial for environmental issues and long-term business sustainability. To remain competitive and comply with regulations, firms need prioritize operational capacity in supporting these initiatives. As one of the key concepts in operations management, operational efficiency (OE) measures a firm’s ability to utilize its resources effectively. However, the impact of this operational capacity on sustainable practices remains unclear in the literature. Also, conventional methods may yield inconsistent OE estimates, limiting their applicability in empirical studies. To investigate the impact of OE on green innovation, we refine the OE estimation by proposing a semiparametric stochastic frontier model with flexible features, which incorporates interactive fixed effects, specifies an additive frontier with interactions, and avoids distributional assumptions. Using this framework, we provide robust evidence that OE negatively affects green innovation, as reflected in a decrease in green invention and utility model patent applications. Further mechanism analysis shows that focusing on higher OE results in reduced financial flexibility and intensified pressure effects. These findings suggest that an excessive emphasis on OE can undermine a firm’s environmental activities.

Keywords: Green innovation; Operational efficiency; Stochastic frontier analysis; Interactive fixed effects (search for similar items in EconPapers)
JEL-codes: C14 C33 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s00181-025-02760-x

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