Navigating the black box: board co-option and environmental innovation

Gull, Ammar Ali and Iqbal, Umer and Ghafoor, Abdul and Ahmed, Ammad (2025) Navigating the black box: board co-option and environmental innovation. Journal of Accounting Literature. ISSN 0737-4607

Preview

Text JAL-05-2024-0103_Proof_hi_1_.pdf - Accepted Version Available under License Creative Commons Attribution Non-commercial. Download (365kB)

Abstract

Purpose

This study examines the impact of board co-option on environmental innovation and the moderating effect of firms’ industrial context, ESG compensation and environmental policy stringency (EPS) on this relationship. Finally, we examine the implications of the board co-option and eco-innovation nexus on the market value of firms.

Design/methodology/approach

This study employs the system generalized method of moments (GMM) estimator on a longitudinal panel dataset of the US-listed firms to test the proposed hypotheses. The system GMM findings are substantiated using the entropy balancing method and difference-in-differences (DiD) estimations to better establish causality while addressing endogeneity concerns.

Findings

The findings provide evidence that board co-option has a negatively significant relationship with environmental innovation. Further analyses imply that the impact of board co-option on environmental innovation is positively significant among firms operating in environmentally sensitive industries, with ESG compensation for executives, and those operating in environments characterized by high environmental policy stringency. Taken together, these results suggest that industrial context, ESG compensation and environmental policy stringency moderate the impact of board co-option on environmental innovation. The results also reveal that more environmentally innovative firms attain greater market valuation when the board is co-opted.

Originality/value

This study is a novel attempt to contribute to the debate on board composition and its impact on corporate environmental innovation. It complements the existing literature on sustainability governance and accounting by providing an understanding of the impact of board co-option on corporate environmental innovation and highlights the role of regulatory pressure, industrial context and executive compensation structure in shaping this relationship. The findings offer valuable insights for academics, senior management and policymakers.

Item Type:	Article
Identification Number:	10.1108/JAL-05-2024-0103
Dates:	Date Event 27 January 2025 Accepted 3 March 2025 Published Online
Uncontrolled Keywords:	Board co-option, Environmental innovation, ESG compensation, Environmentally sensitive industries, Environmental policy stringency
Subjects:	CAH17 - business and management > CAH17-01 - business and management > CAH17-01-07 - finance
Divisions:	Business School > Accountancy, Finance and Economics
Depositing User:	Gemma Tonks
Date Deposited:	09 Sep 2025 13:28
Last Modified:	09 Sep 2025 13:28
URI:	https://www.open-access.bcu.ac.uk/id/eprint/16642

Actions (login required)

View Item