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.
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.