The ripple effect of environmental shareholder activism and corporate green innovation: Evidence from Chinese listed companies

This study examines the effect of environmental shareholder activism on corporate green innovation and the underlying mechanism. Our results show that environmental shareholder activism mitigates time-based agency conflict between shareholders and managers and alleviates managerial myopia, consequently leading to an increase of corporate green innovation. Specifically, we find that the positive effect of environmental shareholder activism on green innovation is more pronounced when managerial myopia is more severe, shareholders are willing to monitor corporate governance, and managers are able to learn from investors through high-quality direct interactions. Furthermore, in terms of influencing mechanism, we find that environmental shareholder activism can produce a ripple effect, causing more site visits, news media coverages and internet searches, and these attention pressures can further motive managerial engagement in more green innovation. We also find that firms that increase green innovation following environmental shareholder activism achieve a higher valuation, suggesting that investors make favorable response to firms' sustainable development.