Do Green Innovations Attract Institutional Investors?

This study examines whether institutional investors (IIs) invest more in firms with higher levels of technological green innovations (TGI) and whether such investments depend on the characteristics of IIs. We answer these questions by employing a time-varying investor-level dataset of IIs' equity ownership of their investee firms across 50 countries and exploiting the first Kyoto Protocol commitment as an exogenous variation to TGI. The results indicate that firms with higher TGI (TGI firms) draw higher equity ownership from II. Further, the attractiveness of TGI depends on the heterogeneous characteristics of II. Specifically, we find that IIs that are independent and have longer-term investment horizons invest more in TGI firms.