The Impacts of Executive Equity on Green Corporate Innovation

Abstract

Executive stock incentives, as an important tool for attracting talent and achieving long-term development goals, have a profound impact on the development of green innovation in enterprises. Based on this, this article uses data from Chinese listed companies from 2007 to 2020 and employs a two-way fixed effects model and a two-stage least squares method to explore the impact of executive stock incentives on green innovation in China. The study found that executive stock incentives have a significant positive impact on green innovation in enterprises. This promotional effect is more pronounced in non-state-owned enterprise groups characterized by operating losses, reduced institutional holdings, and fewer negative media reports. Mechanism analysis suggests that increasing the intensity of executive stock incentives can enhance profitability, increase tolerance for failure, and promote increased investment in green innovation. Finally, based on the conclusions, relevant policy implications are drawn.

1. Introduction and Literature Review

As the financial system continues to deepen its reform, the financial market needs new vitality to achieve a healthy and stable development. As pointed out in the proceedings of the twentieth Party Congress, China should direct innovative products in the fields of science and technology finance and green finance, better serve the needs of “specialized and special new” enterprises, actively and steadily promote the carbon neutralization of carbon peaks, and realize the green development of a high-quality modern economic system. In tandem with the increasing standardization of executive equity incentives, the A-share market executive equity incentive has entered the middle and senior stages of normalization, with the entire registration system expected to be completed in 2023. Enterprises need to work on industrial chain development through transformation and upgrading. In the context of green finance, this study examines how executives, as the central actors in corporate activities, can drive green innovation through their business activities. The findings not only offer theoretical support for designing executive equity incentive plans in publicly traded companies but also provide valuable insights and guidance for enterprises aiming to achieve green innovation in the future. This research holds vital theoretical and practical significance in the field.

The development of managerial competence in the emerging market of green innovations is influenced by several crucial factors. Visionary leadership, as highlighted by Lampikoski et al. (2014) [1], plays a central role in fostering competence among managers, enabling them to effectively navigate the challenges of green innovation. This is complemented by organizational culture and support systems, as emphasized by Szczepańska-Woszczyna (2020) [2], that facilitate the development of managers’ competencies in driving green innovation through a supportive culture that prioritizes environmental sustainability and the provision of dedicated support systems such as training programs and resources. Additionally, the external environment, encompassing regulatory frameworks and market pressures, further shapes the development of competence predispositions among managers in the green innovation market. Zhang and Zhu (2019) [3] point out that favorable regulatory conditions, including government incentives and supportive policies, encourage managers to acquire and enhance their competence in green innovation practices. Furthermore, market pressures driven by increased consumer demand for sustainable products serve as a motivating factor for managers to develop the competencies necessary to seize green innovation opportunities. In conclusion, visionary leadership, talent resources, organizational culture, support systems, regulatory frameworks, and market pressures collectively influence the development of managerial competence in the emerging market of green innovations. Understanding and addressing these factors are vital for organizations and policymakers aiming to foster the growth of managerial competencies and drive successful green innovation initiatives.

Scholars have conducted in-depth studies on executive equity incentives and corporate economic behavior by analyzing the existing literature. As a compensation policy, executive equity incentives are a measure implemented through the company’s governance utilizing a talent-value reward mechanism. Comparatively, executive incentive equity, as the most effective and long-lasting medium- to long-term incentive, has an asymmetric return curve and effectively motivates core strategic and technical employees to invest in long-term innovation R&D [4,5]. Executive equity incentives have an impact on the organization’s actions. Renjun Zhou (2012) [6] noted that executive equity incentives play a conflicting or monitoring role in various equity types and growth companies. According to agency theory, management should divide residual income in order to maximize the interests of both managers and proprietors [7]. Zong (2013) [8] states that executive equity incentives reduce the likelihood of executive attrition in a company and cause executives’ and shareholders’ interests to converge, thereby motivating them to make long-term investments. On the other hand, this will have the same effect on the behavior of other capital market participants, and the traditional executive equity incentive approach may need to be more effective at motivating risk-averse agents. According to Shao Shuai (2014) [9], in order to promote the marketization of compensation mechanisms in state-owned enterprises, regulatory authorities must strengthen administrative reviews of executive equity incentives to ensure their rationality and sustainability.

In addition, corporate green innovation, one of the most important economic strategies for publicly traded companies, can be accomplished through macro and micro policies and measures. Liu and Xiao (2022) [10] found that China’s environmental protection tax reform impacts green innovation through resource constraints on corporate cash flow at the macro level. Thus, Qi et al. (2018) [11] argue that instituting pilot emissions trading not only encourages green innovation among businesses but also provides a firm theoretical basis and implementation guidance for such conduct.

At the micro level, Buysse and Verbeke (2003) [12] point out that stakeholders such as employees, shareholders, and economic institutions are associated with the implementation of green creativity in enterprises; Li and Xiao (2020) [13] argue that internal factors such as corporate resources and green invention patents promote corporate green innovation incentives. Yu et al. (2019) [14] state that there is a “threshold effect” and a U-shaped link between the original technological disciplines and corporate green innovation. Attracting and retaining talented individuals is crucial for the effective implementation of equity incentive mechanisms. These individuals possess the skills and expertise necessary to drive innovation, mitigate risks, and enhance overall organizational performance. Additionally, talented individuals with environmental expertise and knowledge play a pivotal role in successfully integrating sustainability practices into organizations. By offering equity incentives, organizations can attract and motivate such talent, leading to improved environmental performance and fostering a culture of innovation. To ensure the effectiveness of equity-based incentives, organizations must prioritize talent management practices, including recruitment, development, and retention of high-performing individuals. By aligning talent management strategies with equity incentives, organizations can attract and motivate top talent, fostering a high-performance culture and driving organizational success. Recognizing the importance of talent and integrating it with equity incentives allow organizations to optimize their performance, achieve sustainable growth, and stay competitive in the market.

Synthesizing the above research status, the current research on executive equity incentives and commercial economic behavior focuses primarily on the impact on corporate business activities and risk management, etc., but little attention is paid to the impact on corporate innovation activities: Tian and Meng (2018) [15] and Hao and Liang (2022) [16] both explored the substantial impact of executive equity incentive schemes on firms’ innovation inputs and outputs. However, the influence of managerial equity incentives on green innovation in corporations has never been uniformly concluded, and the differences between corporate innovation activities and green innovation activities have yet to be considered. Given this, the link between executive equity incentives and corporate green innovation is examined in this article, along with recommendations for business development, change, and social responsibility in the modern period.

The following are some potential contributions made in this paper: The investigation into the monetary effects of executive equity incentives is expanded. Current research on executive equity incentives explores the effects of executive equity incentives on firm performance based on a surplus management perspective [17], corporate innovation, and other effects. This paper builds on this foundation and explores whether the tolerated failure resulting from executive equity incentives further affects corporate green innovation, an important investment activity. Second, it examines the distinctions between business and commercial green innovation and determines the correlation between executive incentives and ecological creativity by expanding the sample data to nearly 4,000 listed companies with A-shares to thoroughly examine the relationship between the two. Thirdly, a complete set of theoretical hypotheses and research ideas are developed. Although corporate green innovation is affected by the negative external internalization of ecological regulations, it is an innovation activity with tolerance for failures, high risks, and high return characteristics. The executive equity incentive alleviates the short-sightedness of executives and increases long-term green innovation. Fourth, it has practical significance because green innovation strategy is important in improving green dynamic capability, mitigating negative environmental impact, gaining a green advantage, etc. [18,19] In order to enhance internal motivation and boost corporate competitiveness, this article examines corporate sustainable development strategy from the standpoint of multinational leaders’ conduct.

2. Theoretical Mechanism Analysis and Research Hypothesis

2.1. The Direct Effect of Executive Equity Incentives on Corporate Green Innovation

Equity incentives can negatively affect corporate green innovation by increasing principal-agent costs, disguising true profits through financial fraud, and weakening control. Most environmental problems imply negative externalities, and corporate green innovation, as one of the green activities, has a “double externality” [20] that is essentially an internalization of the negative externality: environmental regulation weakens a firm’s ability to compete and can result in a loss of firm value, negatively impacting business performance. Geroski (1994) [21] shows that the full cost of innovation borne by green innovation firms is much greater than the benefits received; Jaffe et al. (2005) [22] find that regulatory instruments for environmental issues change the behavioral choices of agents in financial markets through the internalization of negative externalities, and Wang and Liu (2014) [23] find that the relationship between environmental regulation and total factor productivity of firms is consistent with the statement “When the intensity of environmental regulation exceeds the burden that firms can bear, total factor productivity will decline. Jie et al. (2014) [24] argue that there is a certain lag effect on the impact of a firm’s R&D investment on business performance.

Since executives invest most of their human capital as well as their personal wealth in their companies, executives will be overly concerned about corporate share prices and more worried about falling share prices [25]. Bebchuk (2004) [26] argues that instead of solving agency problems, equity incentives have become a rent-seeking tool for executives and that management power theory can explain the dramatic increase in executive compensation and that the implementation of some equity incentives is actually a manifestation of executive self-interest as the board of directors has manipulated them to give themselves higher equity incentives and the incentives have been distorted.

Thus, corporate green innovation has a “double externality” in that the environmental impacts associated with pollution emissions will bring significant negative externalities to society, the internalization of which will place a serious burden on companies. Green technology innovation is relatively less frequent than traditional technology innovation. At the same time, corporate management will adopt a series of self-interested behaviors in order to protect their own interests from being affected, and the implementation of equity incentives will only exacerbate this situation, making the incentive mechanism distorted so that after the implementation of equity incentives, executives will instead choose not to invest in green innovation and opt for low-risk behavior in order to avoid the loss signals brought about by the internalization of negative externalities. Using the analysis presented above, this paper proposes Hypothesis 1a:

H1a. 

Executive equity incentives promote corporate green innovation.

Considering the holistic, long-term, and fundamental issues in corporate development, this paper hypothesizes that appropriate green innovation strategies can mitigate the curbing effect of environmental issues. Executives tend to implement them to reach a green, low-carbon transition. Corporate green innovation, as a type of corporate innovation, is a major driver of long-term economic growth with the goal of market capture and revenue generation driving product production differentiation (Braguinsky, 2021) [27] The innovation process is characterized by high-risk, high uncertainty, long cycle time, and high investment [28] The main driver of innovation is market capture and revenue creation, which drives product production differentiation (Braguinsky, 2021) [27] and is characterized by high risk, high uncertainty, long lead time, and high investment. Manso (2011) [29] points out that firms have difficulty financing innovation, tolerate the risk of failure in the short term, and reward their incentive recipients handsomely in the long term. Based on this, the characteristics of innovation activities determine that the process of innovation investment is gradual and difficult to transform into enterprise short-term advantages. The high cost of experimentation limits the production variables, and the increase of labor productivity and improvement of production methods must pass the test of time, which leads to the increasing burden of enterprises and the continuous weakening of innovation motivation [30,31]. At this point, this paper argues that innovation causes firms to tolerate failure, making it difficult to improve business performance in the short term. Therefore, it requires a long-term incentive system design to adjust.

Through their motivational effects and ability to restrict management conduct, executive equity incentives may encourage business sustainability initiatives. As the core managers of enterprises, executives have a crucial influence on formulating and implementing innovation decisions. In the face of innovation activities, both with high risks and high benefits, traditional performance appraisals focus too much on short-term accounting profits, and executives, as the core figures of the daily management of enterprises, have a leading role in enterprise technology innovation [32]. As an ongoing incentive system, executive incentives for equity can combine the interests of operators with the long-term benefits of the enterprise. They can change the risk orientation of executives. Hellmann (2011) [33] found a significant positive relationship between executive long-term incentive contracts and technological innovation output. Qi et al. (2020) [34] found that implementing stock options with extended incentive periods could enhance stock options’ tendency to encourage risk-taking and boost company innovation output. Li et al. (2022) [35] argue that a two-tier ownership structure can encourage targeted investments in executives’ talent, which will foster business innovation. Further, it is worth noting that several authors have established a strong link between executive equity incentives and key aspects of human resource management, the knowledge economy, and social competence in their respective studies. Dobrowolski (2021) [36] emphasized the importance of efficiently utilizing human resources in a turbulent business environment, highlighting the need to reduce employees’ competency niche and identify competency mismatches in the European Union. Thite (2004) [37] underscored the significance of effective people management in the knowledge economy, examining the key challenges associated with managing knowledge workers. He put forward essential HR strategies, such as adopting a trusting HR philosophy and institutionalizing a culture of continuous learning. Taborsky’s study (2012) [38] centered on the evolutionary and ecological importance of social competence, proposing an integrative approach to comprehending the brain’s translation of social information into flexible behavioral responses and the impact of social plasticity on fitness. Therefore, executive equity incentives focus on long-term results, which can efficiently optimize talent-resource management and address the issues of short-sightedness among executives and traditional short-term performance evaluations.

According to the above, long-term executive equity incentives may encourage the restructuring of businesses and environmentally conscious innovation [8]. Under the macro goals of carbon neutrality and carbon peaking, the government encourages green innovation from the external perspective of businesses by constructing carbon emission rights and a green financial market. Long-term compensation policies, such as executive equity incentives, can effectively mitigate green innovation’s trial-and-error costs and increase executives’ confidence in green innovation, thereby promoting green innovation in businesses. Using the analysis presented above, this paper proposes Hypothesis 1:

H1b. 

Executive equity incentives promote corporate green innovation.

2.2. The Transmission Mechanism of Executive Equity Incentives for Corporate Green Innovation

Executive equity incentives not only have the above direct effect on corporate green development but also have the indirect effect of affecting corporate performance or profitability. Corporate performance is a centralized reflection of the results of the business activities of listed companies [39]. It is a tool to realize the enterprise’s and the executives’ joint growth and reflects its profitability, marketing, coordination, and supply ability. Green innovation is a special investment activity contributing to economic and environmental benefits. Good environmental performance can effectively increase the value of listed companies, improve the convenience of financing, and stimulate their green innovation enthusiasm and activity [40,41,42]. This paper argues that the growth of corporate performance is a key factor in increasing the value of listed companies. This paper considers the growth of corporate performance as a channel to increase investment in green innovation and an important motivator for executives to implement executive equity incentives.

The classical logic of existing corporate green innovation research is based on the idea that “external pressure adjusts corporate performance goals, which in turn affects green behavior” and that the improvement of corporate performance may spur businesses to increase their green innovation spending. In terms of the capital spillover mechanism, promoting green innovation can increase businesses’ responsiveness and competitiveness in the marketplace. Fu et al. (2010) [43] point out that the demonstration and human capital flow effects triggered by enterprise performance can stimulate internal resource integration and innovation investment. In terms of the intertemporal knowledge spillover mechanism, the previous innovation results may be transformed into corporate performance, thus enhancing profitability and influencing the next phase of investment, and policymakers will increase green innovation reform efforts after tasting the “sweetness.” In terms of the market’s mechanism for competitiveness, the green innovation of enterprises needs capital, talent, and other factors to maintain the primary supply to secure their position in the market. Therefore, corporate performance, as a reflection of profitability in the market, becomes an essential part of the process, providing factors and organization guarantees for green innovation investment.

Long-term executive equity incentive systems enhance profitability and corporate performance, leading to long-term internal profitability. In existing scholarly research on the impact of firm value, managerial and executive equity incentives significantly impact firm performance (profitability) compared to board structure. Therefore, attention should be paid to administrative equity incentive policies. Wang and Huang (2006) [44] pointed out that the optimal level of incentives is the result of the equilibrium of benefits and costs for operators and that for a sample of high-tech firms, increasing the intensity of executive equity incentives can help to increase firm value, thus encouraging equity pilots. Yin et al. (2018) [45] discovered that CEO incentives for remuneration had a substantial positive moderating influence on the association between company innovation investment and company outcomes.

Therefore, the mediation influence on business performance is recognized. Executive equity incentives may increase company value and profitability, while corporate performance can foster corporate green innovation. Based on the study presented above, this paper suggests Hypothesis 2:

H2. 

Executive equity incentives drive green innovation in enterprises by linking them to corporate performance.

2.3. The Moderating Effect of Executive Equity Incentives on Corporate Green Innovation

Corporate performance plays a vital role in the economic behavior of listed companies. However, it is influenced by the nature of ownership, corporate losses, institutional holdings, reductions, adverse media reports, and geographic area factors.

Considering the nature of businesses based on the existing institutional background and ownership structure in China, there are differences in resource constraints and principal-agent aspects among enterprises with different property rights. On the one hand, SOEs are subject to stricter curbs and regulations in implementing executive equity incentive plans: limiting the benefits received by executives, weakening the flexibility of SOEs’ equity incentive plans, and reducing the effectiveness of SOEs’ shareholding plans. On the other hand, internal controllers in some SOEs can generate self-interest and rent-seeking in the context of compensation control. Xin and Lv (2012) [46] found that due to the presence of pay controls, executives may get into orientation dilemmas and not become high-risk green innovators. Xiao and Chen (2013) [47] point out that the equity incentive plans of SOEs are in line with the “management power theory,” which is a manifestation of management using their power to seek rent. Therefore, executive equity incentives in SOEs take longer to play their original motivational role. In non-SOEs, executive stock options possess a more advantageous impact on ecological innovation.

Corporate losses result from a situation in which expenses exceed revenues in the production and operation of a company, indicating that the company is on the verge of distress. On the one hand, corporate losses are contrary to the expectations of corporate investors, leading to a decline in share price and profitability within the company, a reduction in shareholder wealth, and even suspension of listing and bankruptcy [48]. On the other hand, the government will subsidize the resources of enterprises with losses or poor profitability to allow them to save their lives so that listed companies can improve their performance, eliminate their financial difficulties, and turn their losses into profits. [49] Therefore, to avoid an enterprise’s loss-making situation, the government will subsidize the resources of the enterprise. Therefore, to avoid worsening the loss situation, enterprises will aim at profitability and carry out a series of economic activities to relieve the pressure on enterprises. Green innovation activities, as one of the ways to achieve long-term profitability, are also considered. Moreover, as one of the internal management measures, executive equity incentives can enhance actual profitability, and the company’s loss situation has a complementary relationship. Based on this, this paper infers that executive equity incentives significantly impact green innovation when the company is in a loss-making situation. Based on the above analysis, Hypothesis 3 is proposed:

H3. 

The group of non-state-owned firms with a loss-making condition shows a stronger favorable impact of executive equity incentives on corporate green innovation at the company level.

From the perspective of market participants, according to the executive self-interest hypothesis, executives, as the prominent managers within the institution, have a strong self-interest motive for their shareholding reduction behavior. In order to obtain high profits, executives manipulate the disclosure of corporate information and inflate any surplus to enhance investors’ confidence in corporate development and thus increase investment. The more significant the scale of executive shareholding reduction, the more pronounced this strategic disclosure behavior is and the more positive the corporate image is. This enhances investors’ information about the firm’s profitability, which is complementary to the role of executive equity incentives. Zhang and Li (2018) [50] found that executives will reduce their stock holdings by disclosing environmental information to show the sustainability of the company itself, and the larger the size of executive holdings reduction, the more pronounced the policy disclosure; Zhang et al. (2017) [51] pointed out that there exists an upward association between changes in leadership ownership and earnings forecast deviation. If executive equity incentives lead to enhanced corporate profitability, which affects corporate green innovation, then we expect this result to be more pronounced in firms with more extensive institutional holdings and reductions.

Media coverage is timely and extensive. As an essential medium for disseminating information in modern society, its changes are closely related to information asymmetry, corporate reputation, corporate violations, surplus capacity, etc. Negative news media include executive scandals, performance fraud, environmental pollution, etc. On the one hand, the more public they are, the stronger the degree of government regulation and punishment; on the other hand, negative news can drive public sentiment, and the corporate image will be seriously damaged, all of which bring a negative impact on corporate value or profitability. Therefore, the impact of CEO stock incentives on enterprise value is more apparent and larger for businesses with less negative news, as is the influence on investments in green innovation. Meng (2015) [52] investigated the governance role of negative media coverage on the principal-agent problem of listed companies and suggested that negative media coverage would inhibit the benefit-encroaching behavior of a company’s significant shareholders. The internet exacerbates the regulatory risk and public opinion pressure from media coverage. This paper suggests that the internet exacerbates the regulatory risk and the pressure from public opinion arising from media environment coverage, which can damage the reputation of corporate executives and thus affect investors’ investment strategies. As a result, this article predicts that the good influence of executive equity incentives on company profitability and, consequently, the positive importance of corporate green innovation, will be less favorable the more negative news media reports there are. The study presented above led to Hypothesis 4 in this article:

H4. 

At the market participant level, the greater the size of a firm’s institutional holdings reduction and the smaller the number of adverse news media reports, the more significant the role of executive equity incentives in being able to moderate a firm’s green innovation positively.

In light of the aforementioned theoretical evaluation and hypotheses, Figure 1 illustrates the paper’s research concept and theoretical process, and the following will be based on the model for empirical analysis.

3. Empirical Design

3.1. Model Construction

For the purpose of determining whether executive equity incentives promote corporate green innovation, this paper refers to Zhao et al. (2020) [53] and Meng et al. (2019) [52] and develops the following regression model:

$${Tgreen}_{i,t+1}=\alpha +\beta {Ei}_{i,t}+{\gamma }^{\prime }{Control}_{i,t}+\sum Year+\sum Industry+{\epsilon }_{i,t}$$

(1)

where Tgreen is corporate green innovation, Ei is executive equity incentives, Control is a series of control variables affecting corporate green innovation, Year is the time effect, Industry is the industry effect, and ε is the random perturbation term.

The endogeneity of each firm’s financial characteristics cannot be disregarded when investigating the effect of executive equity rewards on the growth of company-wide green innovation. On the one hand, there is a specific causal endogeneity between executive equity incentives and green innovation. On the other hand, because there are numerous factors influencing green development, there may be omitted variables or reverse causality issues; therefore, this paper first employs the Heckman two-step method. The following describes how the one-stage and two-stage estimation models are constructed:

$${Ei}_{i,t}=\alpha +{\gamma }^{\prime }{Control}_{i,t}+\sum Year+\sum Industry+{\epsilon }_{i,t}$$

(2)

$${Tgreen}_{i,t+1}=\alpha +\beta {Ei}_{i,t}+\delta IMR+{\gamma }^{\prime }{Control}_{i,t}+\sum Year+\sum Industry+{\epsilon }_{i,t}$$

(3)

Second, this paper employs the instrumental-variables approach to identify the instrumental variables based on industry and province means, calculates the fitted explanatory variable Ei_hat, and constructs a two-stage regression model as follows:

$${Ei}_{i,t}=\alpha +\beta IV+{\gamma }^{\prime }{Control}_{i,t}+\sum Year+\sum Industry+{\epsilon }_{i,t}$$

(4)

$$\mathrm{make} (Ei\_hat)=Ei$$

$${Tgreen}_{i,t+1}=\alpha +\beta {Ei}_{i,t}+{\gamma }^{\prime }{Control}_{i,t}+\sum Year+\sum Industry+{\epsilon }_{i,t}$$

(5)

In addition to the direct-effect model in Equation (1), the subsequent model is built to examine the potential transmission strategy between executive equity incentives and corporate green innovation in accordance with Hypothesis H2.

$$\frac{Ro{a}_{SD}}{Ro{a}_R}=\alpha +\beta {Ei}_{i,t}+{\gamma }^{\prime }{Control}_{i,t}+\sum Year+\sum Industry+{\epsilon }_{i,t}$$

(6)

$${Tgreen}_{i,t+1}=\alpha +\beta {Ei}_{i,t}+\frac{\delta Ro{a}_{SD}}{Ro{a}_R}+{\gamma }^{\prime }{Control}_{i,t}+\sum Year+\sum Industry+{\epsilon }_{i,t}$$

(7)

In Equations (6) and (7), $Ro{a}_{SD}$ and $Ro{a}_R$ represent the five-year standard deviation and magnitude deviation of the intermediate variable M: profitability. In order to avoid the consequences of various endogeneity issues, this research utilizes the theory to show the positive influence of M on the explanatory variables and the model to show the effect of executive equity incentives on M. Therefore, this paper only needs to develop Equation (6) in order to demonstrate the positive correlation between the two variables.

3.2. Variable Selection

In regard to Tgreen for corporate environmental innovation, the extant literature on commercial green innovation metrics focuses primarily on the number of applications for corporate green patents. As indicators for green enterprise innovation, some academicians employ additional metrics, such as an organic logarithm of the overall company capital and net cash flow from operation-related activities [13]. However, the proxy relationship between green innovation inputs and actual benefits generated by enterprises is yet to be proven, and total enterprise assets do not necessarily influence green innovation. In addition, there is a problem of facing truncation, so this paper refers to Qi Shaozhou (2018) [11] and most other scholars’ usage. As a result, we employ corporate green innovation activities as a substitute variable for corporate green patent activities. Specifically, the explanatory variable corporate green innovation is ln (number of green patents + 1).

In regard to Ei for executive equity incentives, the existing literature mainly uses the correlation between managerial shareholding, accounting performance, and market performance as a measure of the effectiveness of executive equity incentives [6]. Although some scholars use the managerial shareholding ratio as a proxy variable for executive equity incentives [54], detailed data on managerial executive equity incentive programs are not published and face the problem of missing data on the international operations of some firms, so this paper refers to Zhao et al. (2020) [53]—if the firm has executive equity incentive for executives, it is recorded as 1; otherwise, it is recorded as 0.

Control is a set of control variables, including firm size (Size), capital structure (Leverage), profitability (Roa), the shareholding of the top shareholder (Top1), the nature of ownership (Soe), corporate social wealth creativity (Tobinq), firm maturity (Lnfirmage), the share of independent directors (Indratio), and dual directorship (Dual). This paper controls for Year and Industry fixed effects. To control for potential cross-sectional correlation problems, this paper clusters the standard errors in all regressions for the firm dimension.

Table 1. Variable Definition and Construction.

Variable Name	Variable Symbols	Breakdown Description	Construction Method
Corporate Green Innovation	Tgreen	Green Patent Applications Quantity	ln(Count of green patents + 1)
Executive Equity Incentives	Ei	Whether to adopt executive equity incentives	1 for taking executive equity incentives, 0 otherwise
Enterprise size	Size	Asset Size	Logarithmic expansion of total assets
Capital Structure	Leverage	Gearing ratio	Total liabilities/total assets
Profitability	Roa	The yield on total assets	Net profit/total assets
Shareholding Governance Structure	Top1	Shareholding Concentration	Percentage of the greatest shareholder’s holdings
Nature of ownership	Soe	Equity Properties	The controlling shareholder in a government-owned business is 1; otherwise, it is 0.
Corporate social wealth creativity	Tobinq	Tobin’s Q value	The logarithm is the ratio of the enterprise’s market value to the cost of capital replacement.
Corporate Maturity	Lnfirmage	The time period for the establishment of the enterprise	The number of years of business establishment is taken as the logarithm
Board Structure	Indratio	Percentage of independent directors	Number of Independent Directors/Number of Board of Directors
Two jobs in one	Dual	Are the chairman and CEO the same person	One of the chairman and general manager are the same person, 0 otherwise

provides a comprehensive description of each variable.

3.3. Data Sources

This paper selects 3812 A-share listed companies on the Shanghai, Shenzhen, and North Stock exchanges from 2007 to 2020 as the research object. It extracts financial indicators, accounting information, and other related data about A-share listed companies from the CSMAR database. The sample data were analyzed as follows, based on the requirements of the research: ① Exclude ST and * ST stocks and financial industry data; ② Exclude companies with missing values in the data and get 32,884 observations in total; ③ The sample variables were subjected to both the upper and lower limits of 1% tail truncation (Winsorize) to prevent extreme values in the data.

3.4. Descriptive Statistics

Table 2. Descriptive statistics.

Variables	N	Mean	SD	Min	Max
Tgreen	32,884	0.753	1.106	0	4.522
Ei	32,884	0.194	0.395	0	1
Size	32,884	22.05	1.308	19.222	26.062
Leverage	32,884	0.431	0.213	0.050	0.948
Roa	32,884	0.039	0.063	−0.273	0.212
Top1	32,884	35.21	15.02	8.860	75.100
Soe	32,884	0.400	0.490	0	1
Tobinq	32,884	2.044	1.335	0.871	8.932
Lnfirmage	32,884	2.808	0.366	1.609	3.466
Indratio	32,884	37.34	5.285	30.770	57.140
Dual	32,884	0.259	0.438	0	1
$Ro{a}_{SD}$	32,884	0.037	0.048	0.002	0.315
$Ro{a}_R$	32,884	0.091	0.114	0.005	0.743

presents descriptive statistics for the variables. The mean value of corporate green innovation (Tgreen) is 0.753. The bare minimum value is 0 and the maximum value is 4.522, demonstrating that there are significant variations in the level of green creativeness investment among corporations. This study has particular practical significance; the mean value of executive equity incentive is 0.194, and the norms deviance is 0.395, which indicates that there are essential differences in the implementation of executive equity incentives. The minimum value of corporate green innovation (Tgreen) is 0 and the maximum value is 4.522. The average equity incentive for executives has a value of 0.192. The deviation from the mean is 0.395, indicating that disparities in the implementation of executive equity incentives across businesses are evident. The variables have passed the correlation test, and there are no severe co-linearity issues involving multiple variables.

4. Empirical Results and Analysis

4.1. Analysis of Baseline Regression Results

Table 3. Baseline regression results.

	(1)	(2)	(3)	(4)
Variables	Tgreen	Tgreen	Tgreen	Tgreen
Ei	0.4171 ***	0.2673 ***	0.3114 ***	0.2028 ***
	(27.34)	(7.92)	(21.02)	(6.93)
Size			0.3876 ***	0.3792 ***
			(71.17)	(22.66)
Leverage			−0.1445 ***	0.1986 ***
			(−4.51)	(3.07)
Roa			−0.1424	0.1790
			(−1.46)	(1.34)
Top1			−0.0032 ***	−0.0019 **
			(−8.08)	(−2.06)
Soe			−0.0191	0.0949 ***
			(−1.450)	(3.06)
Tobinq			0.0386 ***	0.0400 ***
			(8.46)	(4.47)
Lnfirmage			−0.1130 ***	−0.2143 ***
			(−7.21)	(−4.93)
Indratio			0.0049 ***	0.0032
			(4.70)	(1.43)
Dual			0.0634 ***	0.0243
			(4.78)	(0.99)
_cons	0.6725 ***	−0.0885	−7.6311 ***	−7.9022 ***
	(100.17)	(−1.12)	(−63.11)	(−20.39)
N	32,884	32,884	32,884	32,884
R2	0.022	0.115	0.192	0.290
Corporate	NO	YES	NO	YES
Year	NO	YES	NO	YES

Note: ***, ** denote significance at the 1%, 5% levels, correspondingly; t-values in parentheses; standard deviations adjusted for the cluster at the company level.

displays the results of the benchmark regression investigating the impact of a company’s implementation of an executive equity incentive policy on corporate green innovation. This paper investigates the outcomes of panel data with integrand-fixed influences. In columns (1) and (2) of the table, Ei and Tgreen appear to be significant at the level of one percentage point for the core explicating factors and have a strong positive correlation; the level and direction of significance do not change after adding double fixed; in columns (3) and 4, the addition of control variables with double fixed does not change the level or direction of significance. In the third and fourth columns, OLS regressions are conducted with fixed effects. The results indicate that executive equity incentives are still considerably optimistic at the one percent level, and management’s adoption of integrand equity motivations is more conducive to facilitating the execution of corporate green innovation activities. On the one hand, ecological innovation is propelled by the enterprise itself. At the same time, executives are risk-averse and prone to short-term behavior. The segregation of managerial and ownership duties contributes to the principal-agent problem, while green innovation endeavors have been identified as requiring high risk and high investment in the early stage. However, executive equity incentives can enable enterprises to become pioneers in the financial and financial sectors, playing a significant role in terms of knowledge capital, talent resources, and social competence. By providing incentive mechanisms, executive equity incentives can attract and retain talent with innovative abilities and specialized knowledge, thus facilitating the creation and sharing of knowledge. Additionally, they can motivate executives to adopt long-term strategies and to take on higher risks, thereby driving green innovation and the development of zero-carbon technologies. By stimulating executive motivation and creativity, executive equity incentives can reduce the risk exposure of enterprises in terms of internalization and elevate their leadership position in the transition towards a low-carbon economy. In summary, Hypothesis 1a is confirmed, while Hypothesis 1b is not.

4.2. Robustness Tests

In order to enhance the reliability of the regression results and mitigate potential biases, the methodology of this study involves the replacement of explanatory variables and the utilization of propensity score matching (PSM) for conducting robustness analyses.

After replacing the core explanatory variables, the regression results are shown in columns (1)–(3) of

Table 4. Meaning of each indicator of green innovation.

Variables	Symbols	Indicator Meaning
Green Invention patent application	Iep	ln(number of green invention patent applications in period t + 1 + 1)
Green Utility Patent Application	Uep	ln(number of green utility patent applications in period t + 1 + 1)
Green patent obtained	Ep	ln (number of green patents obtained in period t + 2 + 1)

. On the premise of the “International Patent Classification Green List” proposed by WIPO, the number of green inventions (Iep) and the quantity of green utility invention patents (Uep) are used to calculate the amount and difficulty of green patent applications [55]. Furthermore, the literature of other scholars distinguishes between the quantity and quality of green innovation and measures the total number and difficulty of their green patent requests by the number of green invention patents (Iep) and green utility patents (Uep). The number of granted green patents (Ep) is chosen to gauge the performance of ventures’ green innovation investment so as to better represent their actual creative output. This paper selects Iep, Uep, and Ep as proxy variables for green patent applications and regresses them using the fixed-effects model, which reveals that the regression coefficients remain positive. The enactment of executive equity incentives could encourage the application and approval of green patents, thereby increasing the degree of sustainable innovation in businesses, indicating that patent technology can influence enterprise performance during the procedure for requesting a patent. This indicates that patent technology can influence the performance of businesses during the application process, reflecting the fact that some businesses are environmentally conscious and devote greater attention to green innovation. In contrast, the granting and acquiring of patents can reflect the degree of environmentally friendly invention and extant enterprise technology, and the outcomes are durable.

After replacing the dependent variable, the regression results are shown in columns (4)–(5) of

Table 5. Baseline regression results for replacing the explanatory variables.

	Replace Dependent Variable			Replace Independent Variable			PSM
	(1)	(2)	(3)	(4)	(5)	(6)	(7)
Variables	Iep	Uep	Ep	Tgreen	Tgreen	Tgreen	Tgreen
Ei	0.1568 ***	0.1084 ***	0.1589 ***			0.3397 ***	0.2260 ***
	(6.27)	(4.77)	(5.46)			(10.34)	(7.14)
Ei1				0.0132 ***
				(7.00)
Ei2					0.0457 ***
					(6.19)
Size	0.3114 ***	0.2646 ***	0.3222 ***	0.3771 ***	0.3816 ***	0.3481 ***	0.3744 ***
	(20.44)	(19.80)	(19.94)	(22.51)	(22.82)	(14.13)	(16.26)
Leverage	0.0893 *	0.2041 ***	0.1831 ***	0.1985 ***	0.1895 ***	0.1098	0.5312 ***
	(1.68)	(4.12)	(3.00)	(3.07)	(2.93)	(1.01)	(5.20)
Roa	0.1180	0.0520	0.0908	0.1824	0.1991	0.4662 **	0.5896 ***
	(1.07)	(0.51)	(0.70)	(1.37)	(1.48)	(2.16)	(2.85)
Top1	−0.0016 **	−0.0009	−0.0014	−0.0019 **	−0.0019**	−0.0044 ***	−0.0037 ***
	(−2.09)	(−1.27)	(−1.56)	(−2.01)	(−2.01)	(−2.89)	(−2.64)
Soe	0.0994 ***	0.0317	0.0550 *	0.0971 ***	0.0873 ***	0.0926	0.1557 **
	(3.80)	(1.37)	(1.94)	(3.13)	(2.81)	(1.29)	(2.49)
Tobinq	0.0433 ***	0.0226 ***	0.0383 ***	0.0396 ***	0.0413 ***	0.0053	0.0162
	(5.88)	(3.41)	(4.41)	(4.43)	(4.65)	(0.50)	(1.36)
Lnfirmage	−0.1512 ***	−0.1701 ***	−0.2125 ***	−0.2147 ***	−0.2193 ***	−0.1883 ***	−0.2000 ***
	(−4.14)	(−5.10)	(−5.21)	(−4.94)	(−5.04)	(−3.30)	(−3.24)
Indratio	0.0036 **	0.0024	0.0021	0.0032	0.0033	0.0009	0.0002
	(1.96)	(1.36)	(1.00)	(1.43)	(1.47)	(0.25)	(0.06)
Dual	0.0381 *	0.0030	0.0014	0.0241	0.0224	0.0669 *	0.0458
	(1.89)	(0.16)	(0.06)	(0.99)	(0.92)	(1.77)	(1.27)
_cons	−6.5692 ***	−5.5653 ***	−6.7119 ***	−7.8602 ***	−7.9494 ***	−6.4469 ***	−7.9245 ***
	(−18.71)	(−18.39)	(−18.34)	(−20.26)	(−20.54)	(−11.87)	(−14.09)
N	32,884	32,884	29,076	32,884	32,884	11,115	11,115
R2	0.254	0.260	0.277	0.290	0.289	0.162	0.278
Corporate	YES	YES	YES	YES	YES	NO	YES
Year	YES	YES	YES	YES	YES	NO	YES

Note: ***, **, * denote significance at the 1%, 5%, and 10% levels, correspondingly.

. Executive equity incentives are persistent and objective, and the equity structure rarely changes in the short term, which is a more stable measure. Zhao et al. (2020) [53] treat executive equity incentive as a continuous variable and use the number of shares granted (Ei1) and its share (Ei2) to measure executive equity incentives; In particular, the number of equity grants is represented by the logarithm of the number of shares granted plus 1, and the proportion of equity is represented by the ratio of the number of shares granted to the total number of shares. The estimation results demonstrate a substantial positive association between an increase in the number and proportion of shares granted and corporate sustainability, which passes the robustness test.

Columns (6)–(7) in Table 5 report regression results after propensity score matching (PSM). Since the enterprise characteristics and equity characteristics of each firm have an impact on the results of this paper, due to the 0–1 nature of the explanatory variable Ei, we use a propensity score that matches the PSM to figure out the “selection puzzle” under non-randomized experimental conditions. In this paper, all control variables and industry-year dummy variables were selected as covariates with a matching ratio of 1:1 and a matching scale of 0.05. The group receiving treatment and the control group were matched. Figure 2 visually reflects the typical range of values of propensity scores, and it can be seen that both control and treatment groups are within the standard range of values, and the means are relatively close. As indicated by the results, executive stock incentives and corporate green innovation are consistently positively and significantly related at the 1% level, with robustness in the findings.

4.3. Endogeneity Test

To address the potential endogeneity issue caused by sample selection bias, the Heckman epsilon-step method was employed in this study, treating the explanatory variable ei as a binary (0–1) variable. By utilizing this approach, the paper mitigates the endogeneity problem and ensures the robustness of the analysis. In the initial stage, executive equity incentive (whether to incentivize or not) was employed as the explanatory variable for firm size. In the first stage column (1) of

Table 6. Endogeneity test.

	Heckman Two-Stage Results			Instrumental Variables Method
Variables	Ei	Tgreen	Ei	Tgreen	Ei	Tgreen
Ei		0.2116 ***		−0.3556 *		1.5613 ***
		(7.18)		(−1.84)		(7.348)
IMR/IV		−0.5486 *	0.9019 ***		0.7458 ***
		(−1.96)	(14.79)		(13.61)
Size	0.2331 ***	0.2780 ***	0.0488 ***	0.3471 ***	0.0469 ***	0.2531 ***
	(23.99)	(5.18)	(11.35)	(18.55)	(11.07)	(13.98)
Leverage	0.0515	0.1819 ***	0.0356 *	0.1996 ***	0.0477 **	0.1320 **
	(0.87)	(2.77)	(1.70)	(3.2)	(2.28)	(2.17)
Roa	1.4230 ***	−0.4361	0.3145 ***	0.2617 *	0.3001 ***	−0.3593 **
	(8.86)	(−1.28)	(5.82)	(1.79)	(5.61)	(−2.46)
Top1	−0.0079 ***	0.0015	−0.0019 ***	−0.0023 **	−0.0019 ***	0.0013
	(−12.00)	(0.75)	(−6.62)	(−2.44)	(−6.83)	(1.35)
Soe	−0.9792 ***	0.5351 **	−0.1835 ***	−0.0400	−0.1711 ***	0.3154 ***
	(−38.28)	(2.27)	(−20.33)	(−0.88)	(−19.10)	(6.56)
Tobinq	0.0777 ***	0.0083	0.0194 ***	0.0484 ***	0.0200 ***	0.0091
	(10.12)	(0.44)	(5.95)	(5.00)	(6.20)	(0.95)
Lnfirmage	−0.2524 ***	−0.1054	−0.0621 ***	−0.2444 ***	−0.0564 ***	−0.1245 ***
	(−8.45)	(−1.50)	(−4.46)	(−5.73)	(−4.12)	(−2.95)
Indratio	0.0061 ***	0.0005	0.0011	0.0027	0.0009	0.0005
	(3.63)	(0.19)	(1.48)	(1.27)	(1.18)	(0.24)
Dual	0.0536 ***	0.0034	0.0172 *	0.0101	0.0110	−0.0246
	(2.67)	(0.13)	(1.79)	(0.42)	(1.16)	(−1.05)
_cons	−6.9630 ***	−4.4063 **	−0.8079 ***	−7.1559 ***	−0.8373 ***	−5.4706 ***
	(−26.22)	(−2.45)	(−7.80)	(−17.65)	(−8.25)	(−14.03)
N	32,884	32,884	32,884	29,076	32,884	29,076
Pseudo R2/R2	0.212	0.290	0.182	0.274	0.192	0.280
Corporate	YES	YES	YES	YES	YES	YES
Year	YES	YES	YES	YES	YES	YES

Note: ***, **, * denote significance at the 1%, 5%, and 10% levels, correspondingly.

are the Heckman two-phase results; the executive equity is greater the larger the firm size. In the 2nd stage column (2), the Ei-green regression coefficient remains substantially positive after controlling for the inverse Mills ratio (IMR), indicating the validity of the regression results; there is also a substantial relationship between IMR and commercial environmentally friendly innovations, indicating that the endogeneity problem exists and is controlled for. In columns (3) and (4), using the industry means as the instrumental variable, the results indicate a 10% negative correlation between Tgreen and Ei, which contradicts the previous hypothesis; consequently, this instrumental variable is inappropriate, and the model is invalid. Tgreen has a positive relationship with Ei at the one percent significance level, which is consistent with the theory, indicating that executive equity incentives continue to exert a substantial and beneficial effect on business green innovation despite the endogeneity issue, demonstrating that the conclusion is credible.

5. Further Analysis

5.1. Mechanism Analysis

To verify the existence of a transmission mechanism between epsilon incentives for equity and environmentally responsible innovation, this paper refers to Wu and Tang (2016) [56]. The five-year standard deviation of earnings, $Ro{a}_{SD}$ and the five-year size difference, $Ro{a}_R$, are used to measure the volatility and surplus volatility of firms, which in turn measure the profitability of firms—the larger the variable, the stronger the profitability and the better the performance. The article investigates the association between executive stock compensation and company performance, and

Table 7. Baseline regression results of executive equity incentives on profitability.

	(1)	(2)	(3)	(4)
Variables	$\mathit{R}\mathit{o}{\mathit{a}}_{\mathit{S}\mathit{D}}$	$\mathit{R}\mathit{o}{\mathit{a}}_{\mathit{R}}$	$\mathit{R}\mathit{o}{\mathit{a}}_{\mathit{S}\mathit{D}}$	$\mathit{R}\mathit{o}{\mathit{a}}_{\mathit{R}}$
Ei	0.0031 ***	0.0092 ***	0.0025 *	0.0078 **
	(3.80)	(4.67)	(1.94)	(2.56)
Size	−0.0055 ***	−0.0133 ***	−0.0054 ***	−0.0129 ***
	(−19.02)	(−19.14)	(−9.05)	(−9.05)
Leverage	0.0150 ***	0.0346 ***	0.0230 ***	0.0530 ***
	(8.88)	(8.59)	(5.41)	(5.27)
Roa	−0.2130 ***	−0.4895 ***	−0.2036 ***	−0.4682 ***
	(−42.92)	(−41.24)	(−18.99)	(−18.55)
Top1	0.0000	0.0001	0.0000	0.0001
	(1.33)	(1.34)	(0.59)	(0.60)
Soe	−0.0065 ***	−0.0156 ***	−0.0072 ***	−0.0173 ***
	(−9.58)	(−9.65)	(−5.45)	(−5.47)
Tobinq	0.0068 ***	0.0161 ***	0.0078 ***	0.0183 ***
	(27.65)	(27.14)	(11.82)	(11.75)
Lnfirmage	0.0062 ***	0.0150 ***	0.0066 ***	0.0165 ***
	(5.97)	(6.02)	(3.15)	(3.29)
Indratio	0.0002 ***	0.0004 ***	0.0002 *	0.0004 *
	(3.39)	(3.36)	(1.86)	(1.85)
Dual	−0.0009	−0.0025	−0.0006	−0.0019
	(−1.15)	(−1.33)	(−0.53)	(−0.64)
_cons	0.1229 ***	0.2972 ***	0.1215 ***	0.2915 ***
	(18.22)	(18.42)	(8.11)	(8.10)
N	21,872	21,872	21,872	21,872
$R^2$	0.184	0.178	0.218	0.210
Corporate	NO	NO	YES	YES
Year	NO	NO	YES	YES

Note: ***, **, * denote significance at the 1%, 5%, and 10% levels, correspondingly.

displays the outcomes of the regression analysis.

Table 7’s first and second columns represent models without preset effects. The variables executive equity incentives and Roa display positive regression coefficients. There is a statistically significant positive correlation, and columns (3) and (4) contain the firm and Year fixed, respectively. Studies reveal that executive equity bonuses have a beneficial effect on both excess volatility and surplus volatility; therefore, implementing executive equity incentive schemes can increase profitability and company performance. The effect of executive equity incentives on excess volatility is not as significant as surplus volatility itself. Thus, the greater the intensity of executive equity incentive, the greater the increase in the company’s profitability and development rate, albeit to a lesser extent than the increase. On the one hand, a reasonable equity incentive enables management to control the psychology of maximizing personal interests within a relatively reasonable risk control range, thereby increasing the enterprise’s value. On the other hand, an effective equity incentive policy can increase the return on physical capital and human capital investment, decrease the incidence of opportunism, and achieve the maximization of overall interests, thereby enhancing the enterprise’s profitability, performance, and marketability. To summarize the findings, the results of this study confirm Hypothesis 2, providing empirical support for the proposed hypothesis.

5.2. Heterogeneity Analysis

Given the distinctions in corporate policy and the financial climate, the impact of integrand equity bonuses on environmentally friendly innovation varies widely. This paper will investigate the performance of firms under various economic conditions by analyzing the heterogeneity of ownership, listing status, the number of institutional holdings, and the number of negative press reports. Secondly, this paper examines geographical heterogeneity based on the geographical and spatial differences between businesses.

5.2.1. Executive Equity Incentives, Intra-Firm Nature, and Green Innovation

This paper examines the character of corporate ownership and listing status in order to examine the influence of executive equity incentives on innovative green practices under various internal properties of the firms.

Table 8. Heterogeneity analysis: nature of ownership, whether loss-making.

	(1)	(2)	(3)	(4)
Classification	Nature of Ownership		Whether Loss
Variables	Tgreen	Tgreen	Tgreen	Tgreen
Ei	0.2328 ***	0.2321 ***	0.4659 ***	0.1855 ***
	(2.68)	(7.78)	(6.34)	(6.33)
Size	0.4368 ***	0.3126 ***	0.4069 ***	0.3781 ***
	(16.97)	(14.88)	(15.76)	(22.04)
Leverage	−0.0163	0.3565 ***	−0.0336	0.2175 ***
	(−0.14)	(4.88)	(−0.41)	(3.12)
Roa	−0.1786	0.3960 ***	1.0997 ***	−0.4517 *
	(−0.62)	(2.86)	(4.80)	(−1.66)
Top1	−0.0010	−0.0039 ***	−0.0051 ***	−0.0015
	(−0.62)	(−3.59)	(−3.24)	(−1.54)
Soe	0.0622 ***	0.0224 **	0.0355	0.0990 ***
	(3.06)	(2.40)	(0.75)	(3.05)
Tobinq	0.0615 ***	0.0220 **	0.1097 ***	0.0378 ***
	(3.07)	(2.42)	(8.38)	(4.05)
Lnfirmage	−0.2229 **	−0.1854 ***	−0.2850 ***	−0.2109 ***
	(−2.57)	(−3.95)	(−3.57)	(−4.81)
Indratio	0.0055	−0.0001	0.0035	0.0031
	(1.48)	(−0.02)	(0.94)	(1.36)
Dual	−0.0650	0.0606 **	0.0183	0.0240
	(−1.24)	(2.22)	(0.40)	(0.95)
_cons	−9.1449 ***	−6.2662 ***	−8.1644 ***	−7.8544 ***
	(−15.11)	(−12.72)	(−13.37)	(−19.78)
N	13,155	19,729	3,100	29,784
$R^2$	0.384	0.227	0.327	0.290
Corporate	YES	YES	YES	YES
Year	YES	YES	YES	YES

Note: ***, **, * denote significance at the 1%, 5%, and 10% levels, correspondingly.

explains separately the regression results of integrand incentive programs for equity and innovative green technologies for various ownership types and listing scenarios. This paper refers to the existing literature to use the dummy variable of whether the enterprise is a state-owned enterprise, where 1 indicates a state-owned enterprise and 0 indicates a non-state-owned enterprise, and measures the operation of the enterprise by whether the enterprise lost money in the last year [15,57]. Column (1) is for state-owned businesses and column (2) is for quasi-state-owned enterprises. The correlation coefficient of privately held businesses has a greater absolute value than that of state-owned businesses, indicating that executive equity incentives in non-state-owned enterprises play a more substantial part in promoting corporate green innovation, which may result from salary control and executive control. Due to the fact that non-state businesses are subject to less government oversight, the equity incentive plan is unrestricted. The phenomenon of executive self-interest is also reduced, which gives executives the incentive to invest in green innovation and maximizes the role of executive equity incentive; column (3) is for loss-making enterprises, and column (4) is for profit-making enterprises. The results demonstrate an elevated positive relationship between the effect of executive equity incentives on green innovation and loss-making firms. Therefore, loss-making enterprises are more inclined to increase the intensity of executive equity incentives to motivate their executives to get out of the difficulties in time and then adopt green innovation to enhance the competitiveness of their products and improve their profitability to change the loss-making status. The above verifies Hypothesis 3.

The enterprise’s nature reflects not only the implementation of management behavior but also the influence of national policies. Due to additional restrictions and factors, such as the executives’ self-interest and rent-seeking, state-owned enterprises cannot perform the primary role of the executive equity incentive mechanism. As a result of their limited access to resources, private businesses are subject to greater financing constraints. Consider the adoption of an equity incentive plan for executives. In such a scenario, non-state-owned enterprises are generally known for offering more competitive compensation packages. Executive equity incentives, which align executive remuneration with company performance and shareholder interests, serve as an effective means to provide additional rewards and incentives. In contrast, state-owned enterprises often encounter government intervention and constraints in their compensation systems, which restricts their ability to implement similar incentive mechanisms. Consequently, non-state-owned enterprises are better positioned to attract highly skilled and knowledgeable talent, particularly individuals with unique capabilities in the realm of green innovation. Their socially responsible actions are more likely to garner public support and overcome intangible resource constraints, thereby enhancing corporate performance and providing more stable financial support for green innovation. Loss-making enterprises can also be subsidized by the government in terms of funds and policies to enhance their political sensitivity. Moreover, the executives of loss-making enterprises have a daring spirit and need to enhance their own enthusiasm and green reputation in some way to strengthen market recognition and loyalty, so they will be more inclined to invest in ecological innovation and pursue “qualitative” progress.

5.2.2. Executive Equity Incentives, Market Participants, and Green Innovation

Given the consequences of various market participants on firms and the resulting fluctuations in the association between executive equity incentives and innovative green technologies, this article analyzes the correlation between the number of institutional holdings and reductions and negative news media coverage.

In the first and second columns of

Table 9. Heterogeneity analysis: number of institutional holdings and reductions, negative news media coverage.

	(1)	(2)	(3)	(4)
Classification	Number of Institutional Holdings Reduced		Number of Adverse News Media Reports
Variables	Tgreen	Tgreen	Tgreen	Tgreen
Ei	0.2262 ***	0.1840 ***	0.2375 ***	0.1814 ***
	(6.46)	(6.01)	(4.98)	(6.10)
Size	0.4030 ***	0.3626 ***	0.4035 ***	0.3473 ***
	(20.84)	(21.90)	(17.33)	(21.18)
Leverage	0.2306 ***	0.1721 ***	0.2049 **	0.2103 ***
	(2.81)	(2.75)	(2.19)	(3.09)
Roa	0.2392	0.1186	−0.0480	0.4241 ***
	(1.45)	(0.81)	(−0.23)	(2.95)
Top1	−0.0018 *	−0.0019 **	−0.0020	−0.0023 **
	(−1.66)	(−2.13)	(−1.54)	(−2.28)
Soe	0.0908 **	0.1032 ***	0.0686	0.1080 ***
	(2.56)	(3.33)	(1.60)	(3.21)
Tobinq	0.0414 ***	0.0390 ***	0.0346 ***	0.0443 ***
	(3.25)	(4.71)	(2.60)	(5.05)
Lnfirmage	−0.2083 ***	−0.2152 ***	−0.2642 ***	−0.1470 ***
	(−3.82)	(−5.34)	(−4.41)	(−3.31)
Indratio	0.0021	0.0040 *	0.0038	0.0015
	(0.82)	(1.74)	(1.21)	(0.64)
Dual	0.0379	0.0140	0.0248	0.0240
	(1.26)	(0.57)	(0.67)	(0.93)
_cons	−8.3732 ***	−7.5830 ***	−8.4576 ***	−7.2501 ***
	(−18.42)	(−19.87)	(−15.59)	(−18.92)
N	14,727	18,157	15,849	17,035
R2	0.289	0.291	0.339	0.225
Corporate	YES	YES	YES	YES
Year	YES	YES	YES	YES

Note: ***, **, * denote significance at the 1%, 5%, and 10% levels, correspondingly.

, the results of a regression of executive equity incentives on business green innovation for various amounts of institutional holdings reduction are presented. The regression coefficient is 6.46 > 6.01 for firms with an abundance of institutional holding reductions versus firms with a small quantity of institutional holding reductions, indicating that the significance of executive equity incentives on green innovation increases as the number of corporate holding reductions increases. Institutional holding reduction as a way to motivate employees will take advantage of information asymmetry to release good news and can perform the character of executive equity incentive to a greater extent while based on the green preference of institutional investors in investment behavior and the ability to tolerate lower profitability, businesses are more motivated to expand their expenditures in ecological innovation. Columns (3)–(4) explain the correlation between executive equity incentives and corporate green innovation in the presence of negative news media coverage. From column (1), the executive equity incentives of enterprises with more negative news media coverage facilitate corporate green innovation. According to column (2), the executive equity incentives of enterprises with less negative news media coverage show an important association with ecological innovation. Its absolute value is greater than the regression coefficient of column (1), so enterprises with less negative news media coverage establish a better corporate image. Therefore, in order to consolidate their position and profitability, companies with less negative news and media coverage build up a better corporate image. They can gain more support from the public and further enhance their profitability, thus enhancing the impact of executive stock options on green innovation. In summary, H4 is verified.

In the current financial market, the government, businesses, investment institutions, and other social units leverage their respective strengths to reshape the industry system and assist China in achieving its “double carbon goal.” Institutional investors, as one of the greatest indispensable forces for businesses to implement green finance and green innovation, and the media, as the public’s mouthpiece, represent the public interest. The more enterprises hold less, the less negative news is reported by the media, the policy disclosure is strengthened, the government’s supervision is relatively weakened, and the image of enterprises becomes more positive; strengthening the internal governance of companies at this time can further enhance the confidence of market participants in enterprises, attract the attention of more investors, and add momentum to the investment in green innovation.

5.2.3. Heterogeneity Analysis of Spatial Regions

Considering the spatial disparities in enterprise development, the 33 provinces in this study are categorized into eastern, central, and western regions, in accordance with the classification provided by the National Bureau of Statistical Standards.

Table 10. Analysis of the heterogeneity of firms by region.

	(1)	(2)	(3)
Classification	Eastern	Central	Western
Variables	Tgreen	Tgreen	Tgreen
Ei	0.3142 ***	0.2371 ***	0.2598 **
	(8.99)	(2.62)	(2.48)
Size	0.3986 ***	0.3386 ***	0.3674 ***
	(19.13)	(10.86)	(7.43)
Leverage	−0.0741	−0.2952 **	−0.2824 *
	(−0.88)	(−2.10)	(−1.95)
Roa	0.1014	−0.6464 **	−0.7825 **
	(0.59)	(−2.22)	(−2.18)
Top1	−0.0031 **	−0.0043 **	−0.0031
	(−2.51)	(−1.99)	(−1.13)
Soe	−0.0090	−0.0324	−0.0090
	(−0.22)	(−0.47)	(−0.11)
Tobinq	0.0461 ***	0.0271 *	0.0143
	(4.78)	(1.75)	(0.57)
Lnfirmage	−0.1388 ***	0.0907	−0.1659
	(−3.09)	(1.09)	(−1.32)
Indratio	0.0055 *	0.0070	0.0011
	(1.82)	(1.19)	(0.18)
Dual	0.0824 ***	0.0076	−0.0393
	(2.75)	(0.11)	(−0.49)
_cons	−7.8691 ***	−7.0394 ***	−6.8309 ***
	(−17.79)	(−10.67)	(−6.88)
N	23,170	5717	3483
R2	0.200	0.159	0.206
Corporate	YES	YES	YES
Year	YES	YES	YES

Note: ***, **, * denote significance at the 1%, 5%, and 10% levels, correspondingly.

’s columns (1)-(3) indicate that executive equity incentives in the East, Central, and West, respectively, have an enormous promoting effect on ecological innovation; that is, executive equity incentives can considerably promote enterprises’ investments in green innovation. According to the results, the regression coefficient is greatest in the East, followed by the Central region, and smallest in the West. The reasons for this may include the following:

(1) As a critical region of China’s earliest reform, the region to the East has a more developed economy, advanced marketization process, lower information asymmetry, and higher information transparency; therefore, the corporate governance mechanism in the eastern region is relatively sound, the market develops faster, the supply and demand response is more agile, the understanding of green development is more comprehensive, and after the implementation of executive pay reform, the corporate governance mechanism in the eastern region will be even more effective.

(2) Although the Central region is less developed than the eastern region and has not yet established a more mature executive equity incentive system, it has significant development potential. Under the national strategy of “the rise of central China,” the central region has the potential to become a crucial zone. The long-term executive equity incentive plan drives the region more effectively. The impact of a long-term executive equity incentive plan on the region’s green innovation and development is evident.

(3) Geographical location and infrastructure advantages are required for Western enterprises. However, the policy support of “Western Development” and “Belt and Road” has increased the policy flexibility and marketability of the Western region, enhanced the enterprise governance mechanism, and effectively resolved the agency problem. The executive equity incentive has produced the “charcoal in snow” effect, and the enhancement of enterprise performance and investment in green innovation has had a favorable effect on the businesses in the western region that have lagged.

In conclusion, from the standpoint of regional industrial upgrading, executive equity incentives in economically developed regions can be the icing on the cake, and their implementation can enable businesses to maximize the benefits brought by green innovation, with the marginal effect being more significant. In contrast, in less developed regions, executive equity incentives are analogous to throwing charcoal into the snow. The driving effect on regional economic development is more pronounced, whereas the marginal effect is less significant. In less developed regions, executive equity incentives perform a greater part in the practice of dumping charcoal in the snow. It has a substantial driving effect on regional economic development, but a relatively minor marginal effect.

6. Conclusions and Policy Implications

6.1. Conclusions

This paper incorporates executive equity incentives into the framework for the theoretical analysis of corporate environmental innovation and empirically focuses on the impact of epsilon equity motivations on corporate ecological ingenuity using the information gathered from listed Chinese companies between 2007 and 2020. This paper first employs a robust and endogeneity-passing fixed-effects model to examine the promoting effect of executive equity incentives on corporate green innovation. This paper investigates the transmission mechanism between executive equity incentives and green innovation using the mediating-effect model and finds that executive equity incentives encourage green innovation by increasing corporate profitability. Moreover, this paper investigates the numerous economic environments within and beyond the enterprise. Using regression models, it is shown that the role of executive equity incentives in positively regulating green innovation in loss-making enterprises increases proportionally with the size of institutional holdings and the number of negative news media reports. Using heterogeneity analysis, this study investigates the impact of executive equity incentives on environmentally beneficial innovations in the eastern, central, and western regions. The financial causes of this are investigated further.

6.2. Policy Implications

The following policy implications are derived from the aforementioned findings:

(1) The advantages of executive equity compensation and organizational ecological innovation should be maximized. First, we should enrich and improve the long-term incentive mechanism for our corporate executives, raise their awareness of corporate green development, and organize and conduct relevant green development training to encourage them to invest more energy in enhancing the lasting worth of enterprises, support them in actively exploring the formation of asset-saving and sustainable corporate development simulations, and see the “win-win-win” of the market, society, and the environment. The second objective is to expedite the construction of national green development demonstration zones, utilize green exchanges, reduce the negative externalities of carbon emissions, gradually reduce the green premium, intensify the “carbon price signal,” enhance the carbon accounting system, and optimize the low-carbon green innovation of businesses. Third, it is crucial to cultivate a culture of knowledge-sharing and collaboration. This can be achieved by creating an organizational environment that values and encourages the sharing of knowledge among employees. Additionally, forming multidisciplinary teams consisting of executives, technical experts, and sustainability professionals will foster collaboration on green innovation projects. Executives should be encouraged to actively engage in knowledge exchange activities, such as mentoring programs, cross-functional projects, and innovation workshops. These initiatives will facilitate the widespread dissemination of green innovation practices within the organization.

(2) The company should clarify objective and clear performance appraisal objectives for executives, scientifically formulate management performance appraisal standards, increase training and publicity of performance appraisal-related contents, thus inhibiting the short-sighted behavior and management defense mechanism of executives, improve the executive incentive system for green innovation input, and encourage the enterprise to continuously explore the optimal environment for innovation.

(3) The inner essence of businesses should be continually optimized. First, the reform of state-owned enterprises should be bolstered, a sound modern enterprise system should be established, administrative intervention should be reduced, and the incentive mechanism of state-owned enterprises should be made more effective in order to achieve better corporate development objectives. The second objective is to encourage loss-making businesses to improve their management, pay close attention to cost savings and consumption reduction, control costs and expenses, maximize their potential, maximize the benefits of executive equity incentives and green innovation, and increase their level of profitability.

(4) It should take into account the impact of market participants on corporate strategies, strengthen the construction of the capital market, improve its transparency, strictly implement the national policy on shareholding reduction, and intensify the crackdown on false information and insider trading so that stock values may accurately portray the company’s worth, thereby playing the role of the equity incentive mechanism and promoting the capital market more effectively. Second, it strengthens the enterprise’s image, actively conveys positive information to the outside world, increases the enterprise’s visibility and credibility, helps executives understand the status of the company, enhances cohesion and self-confidence, and draws the attention of external market participants to the enterprise, which in turn alleviates financing constraints, promotes the enhancement of the enterprise’s business performance, and has more capital available.

(5) In the procedure of implementing executive equity incentives, we should pay attention to the regional heterogeneity of each enterprise, prioritize coordinated regional development, encourage businesses in the eastern region to get involved with the reformation, transformation, and restructuring of enterprises in other regions through various means, and maximize the role of executive equity incentive and the returns by maximizing the regional advantages. Realize the uniqueness and characteristics of enterprise development, and invest more eco-friendly resources in enterprise development.