Digital investment and environmental performance: The mediating roles of production efficiency and green innovation

Although digital investment is expected to achieve a win-win condition of economic growth and environmental conservation, little is known about the processes through which it improves environmental performance. Drawing on the natural resource-based view, this study explores how digital investment can affect environmental performance through the mediating roles of production efficiency and green innovation. Using a sample of 273 Chinese pollution-intensive firms with 1009 observations over the period 2016–2020, this study provides robust evidence that digital investment can improve environmental performance, and that production efficiency and green innovation play partially mediating roles in the above relationship. A heterogeneity analysis shows that the positive role of digital investment on environmental performance is only significant in state-owned firms and heavy industrial firms but not in private firms and light industrial firms. Interestingly, the environmental impact of digital investment in heavy industrial firms is achieved by improving efficiency, while in state-owned firms, both production efficiency and green innovation play a mediating role. The findings suggest how both managers and policy makers can leverage digital investment to achieve sustainable development in the industry 4.0 era.