Managerial Short-termism, Corporate Social Responsibility and Green Innovation: Empirical Evidence from China

doi:10.21203/rs.3.rs-2628429/v1

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Managerial Short-termism, Corporate Social Responsibility and Green Innovation: Empirical Evidence from China

https://doi.org/10.21203/rs.3.rs-2628429/v1

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Green innovation is key to promoting green development and all-round green transformation. Businesses are the backbone of green innovation. The Upper Echelons Theory tells us that the characteristics of managers can influence critical business decisions and therefore have an essential impact on green innovation strategies. Existing literature has discussed the impact of objective characteristics of managers on green innovation. However, there is little literature on the impact of managerial short-termism on green innovation in terms of its psychological characteristics. Based on the Time Orientation Theory, we believe that a manager's long-term vision is a booster for green innovation, while short-termism inhibits it. To test our idea, we perform a systematic analysis. Based on a theoretical analysis of the relationship between managerial short-termism and green innovation, we also demonstrate our hypothesis using quantitative analysis. Quantitative analysis finds that managerial short-termism does inhibit green innovation and remains true after robustness tests. We also find that the negative impact of managerial short-termism on green innovation is greater in samples with severe financing constraints and greater managerial power. And, in the mediation effect test, we demonstrate that managerial short-termism can influence green innovation by influencing CSR awareness. Finally, we performed an ecological consequence test and found that managerial short-termism ultimately leads to an increase in future carbon emissions in the city where the firm is located. The study enriched research on managerial short-termism and green innovation and provided influential references for subsequent research.

Psychology

Agroecology

Environmental Engineering

managerial short-termism

green innovation

financing constraints

corporate social responsibility

power of management

Green development is the theme of our times. Over the years, in their quest for rapid economic development, countries have chosen a mode of development that is convenient but harmful to the environment, causing enormous damage to the planet we live on. While humans are beginning to realize the importance of protecting the environment, environmental improvements cannot be achieved overnight. Take China, for example. Since reform and opening-up, China has achieved rapid economic and social development and created a miracle of rapid economic growth, but this has come at a huge environmental cost. In recent years, China has begun to overhaul its development model and implement different development concepts. At present, China has made remarkable achievements in environmental protection, but environmental pollution still exists. According to the Communique on the State of China's Eco-Environment 2020, one third of all Chinese cities have PM2.5 concentrations higher than the second-level standards set by China, regional heavy pollution days occur from time to time, and the water ecology of key river basins and the health of typical Marine ecosystems are typically not extremely optimistic. How to protect the environment without slowing economic growth is an urgent challenge for China to transform its economic development pattern and achieve high-quality development. Green innovation can help save energy, reduce pollution and improve the environment, promote China's transition from a high carbon economy to a low carbon economy (Teixidoet al.,2019), promote the construction of low carbon cities, realize low carbon economy and sustainable development mode (Zhou Xuefeng et al., 2022), and continuously obtain economic benefits (Jia et al.,2018). Therefore, it is of great significance to actively promote green innovation.

Businesses must play their due role in promoting green innovation. Businesses are responsible for tackling climate change and achieving green development. They should live up to their social responsibilities and meet their carbon reduction targets with the support of green technology innovation. The realization of corporate green innovation is inseparable from both organizational and individual factors. As the main body of the market economy, enterprises' active participation and implementation of green innovation is the key to improving the sustainability of the production process, and the management's attitude is a key factor affecting green innovation (Yu Zhimai, 2022). Therefore, the personal characteristics of management will directly affect the fulfillment of corporate social responsibility and the decision-making of green technology innovation (Shi Xiangjiao et al., 2022). The Upper Echelons Theory states that individual characteristics of managers, such as experience and values, will have a profound impact on corporate strategy. In existing studies, most scholars start from the objective characteristics of management, such as occupational background and work experience (Chen Jiamin et al., 2022; Lu Jianchi et al., 2022) to explore the relationship with green innovation, while few studies emphasize the role of managerial short-termism. Managerial short-termism refers to the short decision-making horizon of managers, who are more inclined to focus on interests that can be immediately satisfied at the moment than on the future development of the business. It originates from the Time Orientation Theory of social psychology (Laverty, 1996; Liu, 2022; Hu Nan et al., 2021). This time oriented phenomenon, whether long-term or short term, is thought to be an innate and stable personal trait and subconscious process, periodically influenced by acquired circumstances (De Volder and Lens, 1982; Kant, 1965; Zimbardo and Boyd, 1999). Therefore, according to the Time Orientation Theory, managerial short-termism will determine their actions and decisions to a greater extent. So how does managerial short-termism affect green innovation? And by what factor? What factors might mediate the relationship between the two? Answering these questions is the main goal of these studies.

In this study, we explore in detail and concretely the impact of managerial short-termism on green innovation. To do so, quantitative analysis is required in addition to theoretical exploration. Short-termism is a subjective concept. This intrinsic, stable quality of time perception is difficult to measure. There is no direct way to measure it. According to psychology, language can reflect people's cognition, preference and personality, and can reflect people's psychological and personality characteristics to a certain extent (Webb et al., 1966). Researchers can understand people's traits by analyzing the types and frequency of words used in the language of the subjects (Hu Nan et al., 2021; Pennebaker et al., 2003). Due to the studies of Hu Nan et al. (2021) and Brochet et al. (2015), we take Chinese listed companies as the research object and use text analysis and machine learning to determine the Chinese word set of "short-term vision", and then use the dictionary method to construct the index of management short-sightedness. After constructing an index of managerial short-termism based on theoretical analysis, we selected data of listed companies in China from 2003 to 2020 as a sample, and then conducted an empirical test of the impact of managerial short-termism on green innovation.

In contrast to several related studies, this study has the following contributions. First, this study enriches the theoretical and empirical analysis of the impact of managerial short-termism on green innovation. On the other hand, this study also empirically demonstrates the existence of time-oriented theories and upper echelons in social psychology. Second, this study innovatively incorporates CSR into the research regime on the impact of managerial short-termism on green innovation. In this paper, we demonstrate the mediating effect of CSR between managerial short-termism and green innovation from both theoretical and empirical perspectives. Third, this study addresses the impact of managerial short-termism on green innovation in terms of financing constraints and the power of managers. Finally, we expand on the ecological consequences of managerial short-termism based on carbon emissions.

Managerial short-termism and green innovation

Green innovation refers to avoiding or reducing the adverse impact on the environment in the process of product production or management so as to improve the performance of environmental management and meet the requirements of environmental protection (Chen et al., 2006). Compared with traditional innovation, green innovation has economic, social and ecological benefits. It is a kind of economic activity with great cost, extreme risk, slow effect and positive externality (Yu Zhimai, 2021). Currently, much of the discussion among scholars on green innovation focuses on external factors and internal objective factors of enterprises. For example, scholars believe that exogenous variables such as the development of digital finance, the level of environmental regulation, and the process of digitalization can affect the level of green innovation of enterprises (Gu Haifeng et al., 2022; Chen Bian et al., 2022; Myung-ho Shin et al., 2022). Only a few scholars have explored green innovation from the perspective of the characteristics of corporate managers. These scholars are believers in the doctrine of the higher echelons. They believe that as the key decision-makers of enterprises, the cognition and values reflected by the psychological characteristics of enterprise managers will affect their interpretation of the environment of enterprises, and then influence their strategic choices (Hambrick, 1984; Liu et al., 2022; Lu Jianci et al., 2022; Qian Wang et al., 2022). For example, Arena et al. (2018) argue that arrogant ceos will overestimate the chance of green innovation success and underestimate the possibility of failure, and are more willing to invest in green innovation. The role of CEO psychology in green innovation is increasingly recognized. It is a shame, however, that little research has been done on the impact of managerial short-termism on green innovation. To remedy this deficiency, this study systematically examines the impact of managerial short-termism on green innovation.

In fact, since Jensen and Meckling(1976) proposed the Theory of Principal and Agent, management short-termism has been an influential concern of the academic community, but it has not been effectively solved (Zhang Jiawei et al., 2022). Lewin(1942), a social psychologist, believes that people have different time orientations, that is, people have different perceptions, concerns and opinions on the past, present and future (Hu Nan et al., 2021). Such short-term time orientation of managers is bound to affect how they choose and pursue social goals, thus affecting their cognitive, emotional and behavioral motivations (Mosakowski and Earley, 2000). The short-termism of managers allows managers to pursue short-term and quick gains when making corporate decisions, and even to use asymmetry of information to deceive investors. For managers who pursue short-term returns, they are not inclined to do innovative activities with high cost, elevated risk and gradual effect (Brochet et al., 2015; Shleifer et al., 1990). The research of Yu Yihua et al. (2018) confirmed that managerial short-termism would absolutely exacerbate the inhibitory effect of accounting conservatism on innovation. We believe that managerial short-termism is less inclined to green innovation activities with positive externalities. The more short-sighted the manager is, the more likely the enterprise is to conceal the identified major defects, and the more likely it is to use earnings management methods such as cutting controllable expenditure and selective disclosure of financial information for its own personal gain, thus not to carry out green innovation activities (Xu Ningning, 2019; Graham et al. 2005; Li Qianru et al., 2022).

These moral hazards and adverse selection problems caused by managerial short-termism are ultimately due to the failure of managers to adhere to their social responsibilities. This is because managers believe in short-termism and corporate social responsibility (CSR) fulfillment is a contradiction. Managerial short-termism hinders companies from fulfilling their social responsibilities. When companies are conscientious in meeting their social responsibilities, the quality of financial disclosure will improve and relations with investors will be better. Corporate social responsibility messages are a positive and effective signaling mechanism through which companies can win the trust and support of stakeholders and maintain long-term partnerships. It is the rational choice of superior-quality listed companies (Huang Hexia et al., 2017). In addition, fulfilling social responsibility will naturally focus on environmental protection, strive to develop green products and promote green innovation. At the same time, enterprises that pay attention to fulfilling social responsibilities will gain additional profits, have more loyal customers, get more social resources and investment, and invest extra resources in green technology innovation (Yang Hailan et al., 2022). Therefore, when managers' short-termism hinders the company from fulfilling its social responsibilities, it is not conducive to improving the level of green innovation in the company.

In summary, we have presented hypothesis studies H1 and H2.

H1: Managerial short-termism is not conducive to green innovation

H2: Managerial short-termism affects green innovation by affecting the fulfillment of corporate social responsibility.

Managerial short-termism, financing constraints and green innovation

Financing constraints are a worldwide problem affecting all aspects of business development. Financing constraints are mainly influenced by factors such as scale and age, political association of enterprises, financial ecological environment, financial development level, relationship between government and market, etc. (Gu Leilei et al., 2018). When faced with serious financing constraints, enterprises are commonly unable to timely and effectively raise funds for their potential investment projects, so they have to give up some excellent investment opportunities, including mergers and acquisitions (Pan Hongbo et al., 2022; Lingling Zhai and Yuhui Wu, 2021; Blouin et al.,2020). Some scholars believe that financing constraints restrict the growth of enterprises, increase the probability of bankruptcy due to capital failure (Musso et al., 2008), and reduce corporate performance and total factor productivity (Hu Xiaoping, 2021). Thus, under the premise that managerial short-termism is concerned with short-term returns, the presence of financing constraints makes managers more likely to use funds in activities with rapid outcomes than in green innovation activities with elevated costs, extreme risks, and slow outcomes.

In summary, financing constraints not only deepen the short-sightedness of managers, but also reduce the implementation of green innovation activities by putting financial pressure on managers. Therefore, we propose the research hypothesis H3.

H3: Financing constraints enhance the negative correlation between managerial short-termism and green innovation.

Managerial short-termism, Power and green innovation

With the deepening of research on inter-organizational relations, the role of "power" has attracted the attention of scholars. "Power" in an enterprise refers to the control power of the management over various resources (Liu Renzhong et al., 2020). The central role played by the characteristics of the manager in the decision-making of green innovation in the company makes the manager an essential factor in the green development of the company. At the same time, as an influential factor affecting the formulation and implementation of managers' strategic decisions, the power of managers will surely have an important impact on the green development of enterprises (Liu Xin et al., 2020). The more powerful the manager, the greater the impact of the manager's subjective will on the business, which also means that the impact of managerial short-termism on green innovation will be amplified. Once short-termism gets the control of the enterprise, the contradiction between short-term interests (or the interests of managers) and long-term interests of the enterprise will become more acute, and the fulfillment of corporate social responsibility and the goal of sustainable development of the enterprise will be difficult to achieve. The study of Han Liyan and Li Hui (2009) also confirmed that the stronger the control of managers over the company, the greater the influence they have on the decision-making process and the significant influence on the whole company.

In summary, by empowering managers to implement their own ideas, the power of managers makes their short-termism stronger and exacerbates the negative impact of their short-termism on green innovation. Therefore, we propose the research hypothesis H4.

H4: The power of managers reinforces the negative correlation between managerial short-termism and green innovation.

Sample selection and data description

In order to carefully investigate the impact of managerial short-termism on green innovation and test whether the research hypothesis is correct, this study selected A-share listed companies in China from 2003 to 2020 as a study sample and used a multidimensional fixed-effect model for empirical analysis. The study data used for this study were screened as follows. One is to eliminate missing data, where the statistical time of the business is less than a year. The second is to remove listed companies and ST companies from the financial sector. Third, to eliminate the effect of outliers on the results, the variables under study are tail-mined. After the above data processing and sample matching, we obtain a total of 32, 133 enterprise-year samples.

The data used in this study are mainly from the CSMAR database, the CNRDS database, and the Great Tide Information Network. STATA 17.0 was used for data processing in this study.

Variable definition and measurement

Dependent Variable

Common measurements of green innovation include the number of green patents granted and the number of applications. Due to the time delay between patent application and approval (Zhong Tingyong et al., 2022), this study uses the number of green patent applications of enterprises to measure green innovation, which is recorded as gre. Since the green patent data has the typical right-bias property, we add 1 to it and take the natural logarithm. The greater the greenery, the higher the level of green innovation. In addition, we use the number of enterprise green patents granted (gre2) to conduct robustness test.

Independent Variable

With reference to the study of Hu Nan et al. (2021), we combined the existing English "short-term horizon" word set, the features of MD&A Chinese corpus and Word2Vec machine learning to develop a Chinese word set that can reflect the manager's "short-term horizon". Then, the proportion of the total word frequency of the "short-term horizon" words to the total word frequency of MD&A words was calculated using word classical method. Multiply that by 100 to get the Manager Short-termism indicator (myo). The higher the index, the more short-termism the manager believes in.

Moderating Variables

Following the theoretical analysis in, we choose financing constraints and management power as moderating variables. Referring to previous studies, we use SA index as the proxy variable of financing constraint (SA). Where, SA=-0.737×SI + 0.043×SI2-0.040×A, SI is the natural logarithm of the total assets of the enterprise, A is the years of listing of the enterprise, SA is negative. Take the absolute value of the SA index. If the absolute value is larger, the financing constraint is larger.

Based on the study of Guo Hong et al. (2020), the power of management is measured from two aspects of control structure and ownership structure based on the corporate governance characteristics of Chinese enterprises. In, the control structure means that the manager concurrently serves as chairman or director, reflecting the positional power of the spatial dimension. The ownership structure is measured by the concentration of ownership. The lower the concentration of ownership, the more supervision devolves from the shareholders and the greater the actual control of the corresponding managers. Finally, the sum of the two normalized results is taken as the proxy variable for the manager's power. The higher the value of this index, the more power the manager has.

Mediating Variable

We use the web crawler method to capture the total social responsibility scores of listed companies over the years from the social responsibility report database of Hexun.com as the proxy variable of corporate social responsibility (csr). The total social responsibility score is the sum of sub-scores for shareholder responsibility, environmental responsibility, employee responsibility, supplier, customer and consumer rights responsibility, and social responsibility. The higher the index value, the stronger the sense of corporate social responsibility.

Control Variables

Referring to the research of He Yunlong et al. (2022) and Yu Zhimai (2022), We choose asset-liability ratio (lev), return on assets (roa), fixed asset ratio (fix), independent director ratio (boa), book-to-market ratio (bm), dual roles (state), shareholding ratio of the largest shareholder (first), cash holdings (cash), corporate size (size), corporate nature (na) tu) and other enterprise-level factors were used as the control variables of the model to eliminate the influence of heterogeneous factors on green innovation. See Table 1 for a table of variable definitions.

Table 1

Variable definitions
Variable	Symbol	Definition
Green innovation	gre	ln(Total green patent applications of enterprises + 1)
Managers are short-termism	myo	Income from calculation
Financing Constraints	SA	0.737 * SI2 SI + 0.043 0.040 x A
Power of management	power	Income from calculation
Corporate Social Responsibility	csr	Hexun.com social responsibility total score
Asset-liability ratio	lev	Total liabilities ÷ total assets
Return on assets	roa	Net profit ÷ total assets
Ratio of fixed assets	fix	Total fixed assets ÷ Total assets
Proportion of independent directors	boa	Number of independent directors ÷ number of board members
Book-to-market ratio	bm	Total shareholders' equity ÷ market value of the company
Two jobs in one	state	If the chairman and the general manager are the same, the value is 1; otherwise, it is 0
Shareholding ratio of the largest shareholder	first	Largest shareholder shareholding/total shares
Holding of cash	cash	Cash flow from operating activities ÷ total assets
Size of Enterprise	size	ln (total assets)
Nature of the enterprise	natu	If it is a state-owned enterprise, the value is 1; otherwise, it is 0

Model construction

In order to quantify the impact of managerial short-termism on green innovation and verify research hypotheses, previous studies are referred to (Xu Songtao et al., 2022; Zhong Tingyong et al., 2022), we constructed the following multidimensional fixed effects model model.

\({gre}_{i,t}={{\alpha }}_{0}+{{\alpha }}_{1}{\text{m}\text{y}\text{o}}_{\text{i},\text{t}}\) +\({\delta }\text{X}+{\phi }_{i}+{{\omega }}_{\text{t}}+{{\epsilon }}_{\text{i},\text{t}}\)(1)

In Model (1), the dependent variable gre represents green innovation, the independent variable myo represents managerial short-termism, and X is a series of control variables. φ_i is the industry fixed effect, ω_t is the time fixed effect.

In order to verify H2, according to the three-step mediation effect model method of Wen Zhonglin and Ye Baojuan (2014), we established the following model.

\({gre}_{i,t}={{\alpha }}_{0}+{{\alpha }}_{1}{\text{m}\text{y}\text{o}}_{\text{i},\text{t}}\) +\({\delta }\text{X}+{\phi }_{i}+{{\omega }}_{\text{t}}+{{\epsilon }}_{\text{i},\text{t}}\)(2)

\({csr}_{i,t}={{\alpha }}_{0}+{{\alpha }}_{1}{\text{m}\text{y}\text{o}}_{\text{i},\text{t}}\) +\({\delta }\text{X}+{\phi }_{i}+{{\omega }}_{\text{t}}+{{\epsilon }}_{\text{i},\text{t}}\)(3)

\({gre}_{i,t}={{\alpha }}_{0}+{{\alpha }}_{1}{\text{m}\text{y}\text{o}}_{\text{i},\text{t}}\) +\({{\alpha }}_{2}{csr}_{\text{i},\text{t}}+{\delta }\text{X}+{\phi }_{i}+{{\omega }}_{\text{t}}+{{\epsilon }}_{\text{i},\text{t}}\)(4)

Among them, csr stands for the intermediary variable corporate social responsibility. In addition, model (2) is the same as model (1). The Stata commands used in this study include asdoc, reghdfe, and ivreghdfe.

Descriptive statistics

Table 2 lists the descriptive statistical results for the main variables. The mean and standard deviation of Green innovation (gre) are 0.3750 and 0.7810. The mean value of managerial short-termism (myopia) is 0.0950, the maximum value is 0.4270, and the minimum value is 0, indicating that managerial short-termism still exists in Chinese listed companies.

Table 2

Descriptive statistics
Variable	Obs	Mean	Std. Dev.	Min	Max
gre	32133	0.3750	0.7810	0.0000	3.5550
myo	32133	0.0950	0.0850	0.0000	0.4270
lev	32133	0.4460	0.2040	0.0590	0.9030
roa	32133	0.0400	0.0580	-0.4130	0.2120
fix	32133	0.2310	0.1700	0.0020	0.7380
boa	32133	0.3730	0.0620	0.0000	0.5710
bm	32133	0.3010	0.1580	-0.0320	0.7740
state	32133	0.2380	0.4260	0.0000	1.0000
first	32133	35.3530	14.9850	8.7700	75.6200
cash	32133	0.1700	0.1370	0.0040	0.6840
size	32133	21.9350	1.2770	18.8360	26.7320
natu	32133	0.4360	0.4960	0.0000	1.0000

Results

Table 3 shows the regression results for the short-termism of managers on green innovation. Column (1) shows the results without adding control variables under the condition of controlling industry fixed effect and year fixed effect. Myo has a coefficient of -0.3614, which is significant at the 1% level. In column (2), control variables are further added, and the coefficient of myo is -0.3453, which is significant at the 1% level. The results show that the coefficient of myo is significantly negative in column (1) and (2), indicating that high managerial short-termism will inhibit the improvement of the green innovation level of China's A-share listed companies, and the research hypothesis H1 is verified. The conclusions of this study are consistent with those of previous studies (Liu, 2022; Qiao Pengcheng et al., 2022). Managers who adopt short-sighted opportunism are fully aware of the risks of innovation activities and are reluctant to invest in long-term innovation. As a result, short-sightedness has stifled green innovation by companies. At the same time, the results of this study also support the Time Orientation Theory and the Upper Echelons Theory. We also believe that individual characteristics of managers, especially their psychological characteristics, can influence their behavior and corporate strategic decisions.

Table 3

Managerial short-termism and green innovation
	(1)	(2)
	gre	gre
myo	-0.3614^***	-0.3453^***
	(0.0500)	(0.0486)
lev		0.0677^**
		(0.0321)
roa		0.7655^***
		(0.0756)
fix		-0.0475
		(0.0309)
boa		0.0229
		(0.0644)
bm		-0.0372
		(0.0349)
state		0.0214^**
		(0.0097)
first		-0.0010^***
		(0.0003)
cash		0.1509^***
		(0.0348)
size		0.1609^***
		(0.0042)
natu		0.0250^***
		(0.0096)
_cons	0.4093^***	-3.1758^***
	(0.0062)	(0.0879)
Control	NO	YES
Industry_FE	YES	YES
Year_FE	YES	YES
Obs	32133	32133
r2_a	0.1569	0.2139
Note: , * and *** denote significance at the significance level of 10%, 5% and 1%, respectively

The Moderating Effect of Financing Constraints

The degree of financing constraints faced by enterprises will affect the capital turnover and capital chain integration of enterprises and seriously affect the normal production and business activities of enterprises (Song Weiwei et al., 2022). In this study, SA index is used to measure the overall degree of financing constraints faced by enterprises. If the absolute value of SA index is larger, it indicates that the financing constraints faced by enterprises are greater. Enterprises with SA index (SA) greater than the industry median are regarded as those facing serious financing constraints; otherwise, they are regarded as those facing less serious financing constraints, and group regression is carried out. The regression results are shown in columns (1) and (2) of Table 4. Columns (1) is listed as the regression result of samples of enterprises with severe financing constraints. The coefficient of myo is -0.3725, which is significant at the 1% level. Columns (2) is listed as the regression result of the sample of enterprises with less severe financing constraints. The coefficient of myo is -0.2596, which is significant at the 1% level. This indicates that the more serious the financing constraints, the greater the negative impact of managers' short-termism on green innovation, and the research hypothesis H3 has been verified. This conclusion is consistent with most literatures that believe that financing constraints are an important reason hindering the development of Chinese enterprises (Yang Guozhong et al., 2019; Ju Xiaosheng et al., 2013).

The Moderating Effect of Managerial Power

We consider firms with manager power greater than the industry median as those with greater manager power; Otherwise, we treat them as those with less manager power and perform a groupwise regression. The regression results are shown in columns (3) and (4) of Table 4. Column (3) is listed as the regression result of the sample of enterprises whose managers have greater power. Myo has a coefficient of -0.3893, which is significant at the 1% level. Column (4) is listed as the regression result of the sample of enterprises whose managers have less power. Myo has a coefficient of -0.3013, which is significant at the 1% level. This suggests that the greater the power of the manager, the greater the negative impact of the manager's short-termism on green innovation. The research hypothesis H4 has been tested. Broadly speaking, the more powerful the management is and the less supervised they are, the more likely they are to enjoy on-the-job consumption, which is more detrimental to enterprise development and green innovation (Quan Xiaofeng et al., 2010). This is also supported by the results of the present study.

Table 4

Moderating effects of financing constraints and management power
	(1)	(2)	(3)	(4)
	gre	gre	gre	gre
myo	-0.3725^***	-0.2596^***	-0.3893^***	-0.3013^***
	(0.0608)	(0.0823)	(0.0714)	(0.0725)
lev	0.0882^**	0.1310^**	-0.0275	0.1783^***
	(0.0408)	(0.0531)	(0.0474)	(0.0500)
roa	0.7036^***	0.8868^***	0.7757^***	0.9191^***
	(0.0962)	(0.1237)	(0.1127)	(0.1234)
fix	-0.0407	-0.1101^**	0.0531	-0.1517^***
	(0.0393)	(0.0519)	(0.0457)	(0.0476)
boa	0.0208	-0.0510	0.0028	0.0138
	(0.0848)	(0.1014)	(0.0969)	(0.0988)
bm	-0.0421	0.0196	-0.1676^***	0.1265^**
	(0.0452)	(0.0566)	(0.0514)	(0.0563)
state	0.0149	0.0150	0.0447^***	-0.0422
	(0.0129)	(0.0148)	(0.0132)	(0.0364)
first	-0.0011^***	-0.0018^***	-0.0017^***	-0.0011^**
	(0.0004)	(0.0005)	(0.0005)	(0.0005)
cash	0.1266^***	0.1640^***	0.2138^***	0.0426
	(0.0474)	(0.0537)	(0.0488)	(0.0560)
size	0.1444^***	0.1705^***	0.1710^***	0.1540^***
	(0.0061)	(0.0063)	(0.0062)	(0.0065)
natu	0.0425^***	0.0213	0.0041	0.0308^**
	(0.0121)	(0.0165)	(0.0152)	(0.0140)
_cons	-2.8488^***	-3.3260^***	-3.3138^***	-3.0721^***
	(0.1286)	(0.1316)	(0.1316)	(0.1356)
Control	YES	YES	YES	YES
Industry_FE	YES	YES	YES	YES
Year_FE	YES	YES	YES	YES
Obs	17220	14269	14490	14250
r2_a	0.2042	0.2330	0.2181	0.2164
Note: , * and *** denote significance at the significance level of 10%, 5% and 1%, respectively

Intermediating Effect Test

Next, we explore the mechanism of manager short-termism on green innovation. Based on the theoretical analysis, we believe that the short-termism of managers can influence green innovation by influencing CSR, so we test the mediating effect of CSR as a mediator variable. We use Hexun's total social responsibility score to measure corporate social responsibility (csr). The higher the score, the better a company's CSR performance. The test results of mediating effect are shown in columns (1) to (3) of Table 5. In column (2), the coefficient of myo is -7.4935, which is significant at 1% level. This shows that the short-termism of managers can truly hinder companies from fulfilling their social responsibilities. In column (3), the coefficient of myo is -0.3882 and the coefficient of csr is 0.0019, both of which are significant at the 1% level, indicating that the performance of CSR reduced by managers' short-termism will reduce green innovation, which is consistent with the view of Xiao Hongjun et al. (2022). The mediation effect analysis shows that short-termism by managers reduces green innovation by reducing CSR awareness. The research hypothesis H2 is verified.

Table 5

Test of mediating effect
	(1)	(2)	(3)	(4)
	gre	csr	gre	fdyh11
myo	-0.3453^***	-7.4935^***	-0.3882^***
	(0.0486)	(1.1200)	(0.0617)
csr			0.0019^***
			(0.0003)
\(\widehat{{\Delta }{gre}_{i,t}}\)				-0.2775^**
				(0.1301)
lev	0.0677^**	-15.8312^***	0.1453^***	-0.0002
	(0.0321)	(0.6713)	(0.0374)	(0.0141)
roa	0.7655^***	57.8241^***	0.7966^***	0.0295
	(0.0756)	(1.6046)	(0.0906)	(0.0420)
fix	-0.0475	-4.9815^***	-0.0420	0.0320^**
	(0.0309)	(0.6893)	(0.0380)	(0.0132)
boa	0.0229	3.2998^**	-0.0510	-0.0206
	(0.0644)	(1.3386)	(0.0737)	(0.0273)
bm	-0.0372	-8.5727^***	-0.0163	0.0013
	(0.0349)	(0.7211)	(0.0398)	(0.0159)
state	0.0214^**	-0.0841	0.0124	-0.0016
	(0.0097)	(0.2007)	(0.0111)	(0.0042)
first	-0.0010^***	0.0564^***	-0.0010^***	-0.0001
	(0.0003)	(0.0061)	(0.0003)	(0.0001)
cash	0.1509^***	1.2077^*	0.2067^***	-0.0006
	(0.0348)	(0.7315)	(0.0403)	(0.0159)
size	0.1609^***	4.3973^***	0.1631^***	-0.0012
	(0.0042)	(0.0880)	(0.0051)	(0.0018)
natu	0.0250^***	1.2063^***	0.0368^***	-0.0107^***
	(0.0096)	(0.2092)	(0.0115)	(0.0040)
_cons	-3.1758^***	-68.2173^***	-3.2625^***	0.1051^***
	(0.0879)	(1.8629)	(0.1052)	(0.0380)
Control	YES	YES	YES	YES
Industry_FE	YES	YES	YES	YES
Year_FE	YES	YES	YES	YES
Obs	32133	25961	25961	18394
r2_a	0.2139	0.2945	0.2132	0.1653
Note: , * and *** denote significance at the significance level of 10%, 5% and 1%, respectively

Analysis of Ecological Consequences

The too-short horizon of management decision-making is a common problem in corporate investment and innovation activities, and is also regarded as a constant personal trait and subconscious process. Partly shaped by the acquired environment, it will lead the management to pay attention to short-term interests and ignore future performance, resulting in short-termism driven by internal characteristics and external environment (Stein, 1988; He Yunlong et al., 2022). Such psychological characteristics of managers will lead to the decline of enterprises' green innovation level. We've demonstrated this before. So what will the resulting decline in green innovation mean for the future?

In order to test whether the reduction of green innovation caused by managerial short-termism will affect the future ecological environment, the following two-stage model is constructed by referring to the research of Kim et al.(2021).

Δ\({gre}_{i,t}={\alpha }_{0}+{\alpha }_{1}{{\Delta }\text{m}\text{y}\text{o}\text{p}\text{i}\text{a}}_{i,t}\)+\(\delta {\Delta }X+{\phi }_{i}+{{\omega }}_{\text{t}}+{\epsilon }_{i,t}\)(6)

Δ\({car}_{i,t+1}={\alpha }_{0}+{\alpha }_{1}\widehat{{\Delta }{gre}_{i,t}}\)+\(\delta {\Delta }X+{\phi }_{i}+{{\omega }}_{\text{t}}+{\epsilon }_{i,t}\)(7)

Among them, \(\widehat{{\Delta }{gre}_{i,t}}\) is the fitting value for Δ\({gre}_{i,t}\), Δ\({car}_{i,t+1}\) represent the future enterprise city carbon dioxide emissions a year of variation of values. CO2 emissions data from the China Urban Statistical Yearbook. The results of the second stage regression are shown in column (4) of Table 5. In column (4), the coefficient from the \(\widehat{{\Delta }{gre}_{i,t}}\) is 0.2775, at 5% significant level, it shows that the change of the green innovation and urban future carbon emissions is inversely proportional to the change. In other words, green innovation curtailed by managerial short-termism will increase the carbon emissions of the city in which the firm is located in the future. Therefore, it can be said that the short-termism of management reduces the green innovation of enterprises, which is not conducive to environmental improvement. The foolish and short-sighted behavior of the management is a manifestation of short-sightedness and lack of pattern. It has not only led to an unchangeable development of the enterprise itself, but also has an important impact on the ecological environment, a vivid example of the butterfly effect or domino effect. It also means that China's future carbon targets will be difficult to meet if regulatory short-termism continues to grow.

Robustness Checks

2SLS Regression

In order to reduce the impact of endogenous problems caused by two-way causality on the research results, Liu's study (2022) was used as the instrumental variable of manager short-termism by referring to the average value of managers' short-termism in different enterprises in the same industry and city. In addition, we used the hysteresis period of manager myopia as its own instrumental variable for the 2SLS regression. The regression results are shown in columns (1) and (2) of Table 6. Column (1) lists the regression results of the second stage in which the average value of managers' short-termism is used as the instrumental variable. The coefficient of myo is -0.3122, which is significant at the 1% level and consistent with the above conclusions. Column (2) list the second stage regression result from using one year of manager myopia as an instrumental variable, from the myopia coefficient is -0.9042, significant at 1% and consistent with the previous conclusion. Endogeneity test results show that the results of this study remain robust after controlling for possible endogeneity issues.

Change the Dependent variable

Further, referring to the research of Qi Shaozhou et al. (2018), we choose the number of green patent grants (gre2) as the proxy variable of green innovation to conduct robustness test. The regression results are shown in column (3) of Table 6. The coefficient of myo is -0.2511, which is significant at the 1% level. It still indicates that managers' short-termism will inhibit green innovation, which is the same as the conclusion above.

Delay the explanatory variable by one period

Since the influence of manager shortsightedness on green innovation may have a lag effect, the manager shortsightedness lag stage (Lmy) is carried out again. The regression results are shown in column (4) of Table 6. It can be seen that the coefficient of Lmy is -0.3713, which is significant at the 1% level. This is also consistent with the previous conclusion. This suggests that the conclusions of this study remain valid after controlling for the possible lag effect of managerial short-termism.

Table 6

Robustness checks
	(1)	(2)	(3)	(4)
	gre	gre	gre2	gre
myo	-0.3122^***	-0.9042^***	-0.2511^***
	(0.0601)	(0.1299)	(0.0427)
Lmy				-0.3713^***
				(0.0532)
lev	0.0676^**	0.0739^**	0.0344	0.0708^**
	(0.0321)	(0.0359)	(0.0288)	(0.0358)
roa	0.7675^***	0.7512^***	0.2904^***	0.7840^***
	(0.0757)	(0.0847)	(0.0699)	(0.0842)
fix	-0.0480	-0.0367	0.0065	-0.0436
	(0.0309)	(0.0345)	(0.0275)	(0.0344)
boa	0.0230	0.0480	0.0751	0.0513
	(0.0644)	(0.0710)	(0.0579)	(0.0709)
bm	-0.0368	-0.0336	-0.0412	-0.0306
	(0.0349)	(0.0390)	(0.0319)	(0.0389)
state	0.0216^**	0.0117	0.0222^**	0.0147
	(0.0097)	(0.0108)	(0.0087)	(0.0108)
first	-0.0010^***	-0.0011^***	-0.0006^**	-0.0010^***
	(0.0003)	(0.0003)	(0.0003)	(0.0003)
cash	0.1515^***	0.1747^***	0.0923^***	0.1784^***
	(0.0349)	(0.0417)	(0.0308)	(0.0416)
size	0.1609^***	0.1659^***	0.1396^***	0.1669^***
	(0.0042)	(0.0047)	(0.0038)	(0.0047)
natu	0.0245^**	0.0388^***	-0.0013	0.0322^***
	(0.0096)	(0.0107)	(0.0085)	(0.0105)
_cons			-2.8178^***	-3.3241^***
			(0.0788)	(0.0982)
Control	YES	YES	YES	YES
Industry_FE	YES	YES	YES	YES
Year_FE	YES	YES	YES	YES
Obs	32133	27155	29035	27155
r2_a	0.0662	0.0662	0.1965	0.2213
Note: , * and *** denote significance at the significance level of 10%, 5% and 1%, respectively

Conclusions

As the steersman of the company's strategy, the manager plays a decisive role in the sustainable development of the company. The individual characteristics of the manager, especially the psychological characteristics, will have an important impact on the development of the business. Few existing studies directly address the impact of managerial short-termism on green innovation. This study examines the impact of managerial short-termism on green innovation from different perspectives and provides a crucial reference for subsequent research.

Based on theoretical analysis, this study uses data from listed companies in China as a research sample to conduct a quantitative analysis of the impact of managerial short-termism on green innovation. The quantitative analysis results show that managerial short-termism negatively impacts green innovation, a conclusion that remains valid after endogeneity and robustness tests. We also find that the negative impact of managerial short-termism on green innovation is more pronounced in companies with severe financing constraints and strong management. The mediation effect analysis suggests that managerial short-termism can inhibit green innovation by reducing corporate social responsibility awareness. In addition, we performed ecological consequences tests. We find that green innovation, inhibited by managerial short-termism, will increase future urban carbon emissions, which is not conducive to meeting China's future carbon emission targets.

Study Limitations and Future Recommendations

While this study systematically analyzes the impact of managerial short-termism on green innovation, it is not without limitations. There may be room for improvement in the indicator construction of managerial short-termism and CSR. This study does not explore more specifically the path of managerial short-termism affecting green innovation. While this paper alleviates the endogenous problem to a certain extent, there may be other appropriate ways to deal with these issues. Finally, only Chinese cases are considered in this paper, and cases from other countries are missing.

In the future, researchers should explore additional countries. The long-term impact of managerial short-termism on green innovation should also be considered.

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Managerial Short-termism, Corporate Social Responsibility and Green Innovation: Empirical Evidence from China

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Abstract

Introduction

Theoretical Background And Hypotheses Development

Managerial short-termism and green innovation

Managerial short-termism, financing constraints and green innovation

Managerial short-termism, Power and green innovation

Methodology

Sample selection and data description

Variable definition and measurement

Model construction

Empirical Results

Descriptive statistics

Results

The Moderating Effect of Financing Constraints

The Moderating Effect of Managerial Power

Intermediating Effect Test

Analysis of Ecological Consequences

Δ\({car}_{i,t+1}={\alpha }_{0}+{\alpha }_{1}\widehat{{\Delta }{gre}_{i,t}}\)+\(\delta {\Delta }X+{\phi }_{i}+{{\omega }}_{\text{t}}+{\epsilon }_{i,t}\)(7)

Robustness Checks

Conclusions

Conclusions

Study Limitations and Future Recommendations

References

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