Dividend Payments and Persistence of Firms’ Green Innovation: Evidence from China

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

The article is devoted to the current direction of research. The authors assess the relationship between the sustainability of "green" innovations and the payment of dividends. The researchers also evaluate the factors influencing the indicated dependence. Based on data on the real sector of the economy, a model is being built that allows you to make a choice in favor of a particular solution. The article contains a description of the proposed model and the results of its testing on data from national companies in China. The article is written in simple language and may be of interest to a wide range of readers. The article may be useful for researchers of "green" innovations, as well as for practitioners who ensure the sustainable development of companies. However, the following observations can be formulated aimed at improving the understanding of the research material.

1. Aggregating the research results of various scientists, it can be concluded that there are differences between the "green" economy in comparison with the concept of sustainable development. The "green" economy is not its counterpart, but is a way to achieve sustainability. This is what the authors of this article say, considering the tools of "green" transformation. 

The authors of many studies identify the following features of the "green" economy: social orientation; connection with innovations, new technologies and modernization; maximum territorial coverage; reduction of environmental risks; connection with the digital economy; changing consumption and production patterns; connection with knowledge and education; energy and resource efficiency; commercial benefits of greening the economy. This study mentions "green" innovations related to reducing the negative impact on the environment and the use of digital economy products. At the same time, it would be extremely useful to display the relationship between the payment of dividends and innovations in other areas of the green economy listed above.

2. From the point of view of the design of the manuscript, the following suggestions can be made: table 15 is mentioned in the text, but there is no table itself. There is a table 16. It is recommended to specify the dimensions of the displayed values in the tables and figures.

3. Since the article has a pronounced practical character and is of undoubted interest to a wide range of readers, it would be useful to add a section "future research" describing the direction of the planned research of the author's team.

Comments on the Quality of English Language

Minor editing of English language required.

Author Response

Dear Reviewer,

We sincerely appreciate your professional review work on our manuscript, which we use to improve its quality. In response to your suggestions, we made extensive corrections to the previous manuscript, listed below. We have also marked changes and additions in red in the revised manuscript.

Please see the attachment that is our reply to you.          

Comments 1:The authors of many studies identify the following features of the "green" economy: social orientation; connection with innovations, new technologies and modernization; maximum territorial coverage; reduction of environmental risks; connection with the digital economy; changing consumption and production patterns; connection with knowledge and education; energy and resource efficiency; commercial benefits of greening the economy. This study mentions "green" innovations related to reducing the negative impact on the environment and the use of digital economy products. At the same time, it would be extremely useful to display the relationship between the payment of dividends and innovations in other areas of the green economy listed above.

 

Response 1: We really appreciate your valuable comments. The research in this paper focuses on the impact of dividend payment on the persistence of green innovation. The mechanism of the impact of dividend payment on the persistence of green innovation is clarified in terms of both governance capacity and knowledge management capacity. With reference to your suggestions, the research in this paper covers areas of the green economy such as: green innovation using digital economy products, green knowledge and management, and reducing the negative impact of companies on the environment through green innovation. However, it ignores the impact that dividend payments can have on areas of the green economy, such as maximum geographical coverage, green production patterns of companies, and energy and resource efficiency. There are some limitations of this paper. However, taking into account the focus and relevance of the research in this article and space limitations, We expect to extend the research in this paper by further examining the impact of dividend payments on other areas of the green economy in future studies. Therefore, we have added the limitations and future research at the end of the conclusion accordingly. The details in the manuscript are as follows. [Manuscript page 28, paragraph 1, lines 1015 -1028]

…the research in this paper focuses on the impact of dividend payment on the persistence of green innovations. Its essence is to study the effect of dividend payment as a governance and incentive tool for listed companies to promote the green transformation of the real economy. However, existing studies have found that promoting the sustainable development of the green economy requires not only increasing green innovation performance, but also reducing the risk of green innovation, improving resource efficiency, promoting innovation spillovers, and increasing the business value of the green economy [1,2]. Future research could further investigate whether dividend payments can promote the persistence of green innovations while reducing the risk of green innovations, improving the efficiency of resource use, and achieving effective spillover effects of green innovations within the same region. This means that, on the basis of this paper, the further positive effects of dividend payments in the broader area of the green economy will be further discussed….

 

 

Comments 2: From the point of view of the design of the manuscript, the following suggestions can be made: table 15 is mentioned in the text, but there is no table itself. There is a table 16. It is recommended to specify the dimensions of the displayed values in the tables and figures.

 

Response 2: We are very sorry for our careless mistake. Thank you for your reminder. We have corrected Table 16 to Table 15. [Manuscript page 25, paragraph 2, lines 952][Manuscript page 26, paragraph 1, lines 956.]

 

We have followed your suggestion, based on past experience, and we have added relevant notes at the end of each table for the displayed values. The details in the manuscript are as follows.

 

Note: *, **, *** indicate statistical significance at the 10%, 5%, 1% levels, respectively; t-values in parentheses are adjusted for heteroscedasticity. Industry FE and Year FE represent fixed effects at the industry and year levels, respectively. [Manuscript page 14, table 4, lines 585] [Manuscript page 15, table 5, lines 597][Manuscript page 16, table 7, lines 634][Manuscript page 18, table 8, lines 715][Manuscript page 20, table 9, lines 765][Manuscript page 21, table 10, lines 793]    [Manuscript page 22, table 11, lines 864] [Manuscript page 23, table 12, lines 894] [Manuscript page 24, table 13, lines 912] [Manuscript page 25, table 14, lines 939] [Manuscript page 26, table 15, lines 953]

 

Figure 1 shows the effect of different types of dividend payments on the persistence of green innovation. Figure 1 is a curvilinear relationship graph presented by fitting the dependent variable through a regression of different types of dividend payments and green innovation persistence using Stata software. As per your suggestion, we added scale dimensions on the X and Y axes to the chart. It is particularly important to clarify that the fitting dependent variable produced negative values ​​during the regression process due to the combined effects of control variables and year and industry fixed effects. However, this does not lead to a change in the relationship between dividend payments and the persistence of green innovations. The relationship remains inverted U-shaped and therefore does not affect the conclusions of this paper. The amendments to Figure 1 are shown below. [Manuscript page 26, Figure 1, lines 955]

 

Figure 1 Impact of different types of dividend payments on green innovation persistence

 

 

Comments 3: Since the article has a pronounced practical character and is of undoubted interest to a wide range of readers, it would be useful to add a section "future research" describing the direction of the planned research of the author's team.

 

Response 3: We really appreciate your valuable comments. We have added the limitations of this paper and plans for future research at the end of the conclusions. The details in the manuscript are as follows. [Manuscript page 27, paragraph 4, lines 1015-1043]

However, there are some limitations of this paper. First, the research in this paper focuses on the impact of dividend payment on the persistence of green innovations. Its essence is to study the effect of dividend payment as a governance and incentive tool for listed companies to promote the green transformation of the real economy. However, existing studies have found that promoting the sustainable development of the green economy requires not only increasing green innovation performance, but also reducing the risk of green innovation, improving resource efficiency, promoting innovation spillovers, and increasing the business value of the green economy [1,2]. Future research could further investigate whether dividend payments can promote the persistence of green innovations while reducing the risk of green innovations, improving the efficiency of resource use, and achieving effective spillover effects of green innovations within the same region. This means that, on the basis of this paper, the further positive effects of dividend payments in the broader area of the green economy will be further discussed. Secondly, dividend is just one way for shareholders and management of listed companies to receive monetary benefits. Major shareholders and management can also achieve excess returns through trading behavior on the capital market or the intra-group market[3]. How do these excess benefits affect companies' green innovations? There are fewer studies in this area. Future research could further examine the impact of different forms of benefits, such as excess benefits for large shareholders and private benefits for management, on the persistence of green innovations and also examine whether dividend payments can play an interactive role in this context. Finally, this study uses Chinese listed companies as a research sample, which can to some extent reflect the relationship between dividend payments and green innovation in Asian countries. However, the dividend policies of developed countries such as the United States and the United Kingdom are different from those of China. Research results may differ if relevant data from other countries are adopted as a research sample. Future research could attempt to collect relevant data from multiple countries to examine in depth the differences in the impact of dividend payments on the persistence of green innovations in different countries.

 

Comments 4: Minor editing of English language required.

 

Response 4: We really appreciate your valuable comments. We embellished the language in the manuscript a bit. We have not listed the changes here, but have marked them in red in the revised manuscript. Such as [Manuscript page 1, paragraph 1, lines 32-35] [Manuscript page 2, paragraph 3, lines 78-81] [Manuscript page 3, paragraph 1, lines 100-102] [Manuscript page 6, paragraph 6, lines 285-288] [Manuscript page 7, paragraph 1, lines 309-311] [Manuscript page 7, paragraph 3, lines 324-326], we won't list them all.

 

 

Again, thank you for giving us the opportunity to strengthen our manuscript with your valuable comments and queries. We have worked hard to incorporate your feedback and hope that these revisions persuade you to accept our submission.

 

Reference

1. Cainelli, G.; D’Amato, A.; Mazzanti, M. Resource Efficient Eco-Innovations for a Circular Economy: Evidence from EU Firms. Research Policy 2020, 49, 103827, doi:10.1016/j.respol.2019.103827.
2. Sun, Y.; Bi, K.; Yin, S. Measuring and Integrating Risk Management into Green Innovation Practices for Green Manufacturing under the Global Value Chain. Sustainability 2020, 12, 545, doi:10.3390/su12020545.
3. Enriques, L.; Gilotta, S. The Case Against a Special Regime for Intragroup Transactions. Eur Bus Org Law Rev 2023, 24, 471–506, doi:10.1007/s40804-023-00285-3.

 

Reviewer 2 Report

Comments and Suggestions for Authors

The article is current since it describes the topic of Green Innovation, so it is interesting to read. The authors have structured the article well, however there are still a few suggestions for improvement which are listed below.

After the first chapter 1. Introduction (29), I propose a new chapter 2. Literature Review, so that the existing text (74-108) is transferred to the new chapter and supplemented with new references.

Chapter 2. Theoretical analysis and research hypothesis (145) should be renumbered so that it is chapter number 3 and the numbers of other chapters should be changed.

In the last chapter, Conclusion (893), a paragraph on research limitations and recommendations for future research is missing, so it should be added at the end of this chapter.

Author Response

Dear Reviewer,

We sincerely appreciate your professional review work on our manuscript, which we use to improve its quality. In response to your suggestions, we made extensive corrections to the previous manuscript, listed below. We have also marked changes and additions in red in the revised manuscript.

Please see the attachment that is our reply to you.

Comments 1: After the first chapter 1. Introduction (29), I propose a new chapter 2. Literature Review, so that the existing text (74-108) is transferred to the new chapter and supplemented with new references.

 

Response 1: We think this is an excellent suggestion. Thank you for your suggestion. We have incorporated parts of the introduction into the newly added literature review section in Chapter 2 and added new references. The specific additions in the manuscript are listed below. [Manuscript page 3-4, lines 109 -190]

 

2 Literature review

2.1 Economic consequences of dividend payments

The existing literature on the economic consequences of dividend payments can be broadly divided into two categories; One part of the literature argues that dividend payments are an powerful tool for corporate governance and incentives [1], and the other part of the literature argues that dividend payments can also be a self-interested tool for transferring wealth to major shareholders and management, i.e. h. Dividend tunneling behavior [2].

Regarding the governance capabilities of dividend payments, existing literature concludes that firms with weaker corporate governance are more likely to reduce agency costs [3] and alleviate financing constraints [4] by paying dividends. Dividend payments can mitigate agency conflicts between managers and shareholders and between majority and minority shareholders [5] and preventing excessive managerial investment [1,6] by reducing free cash flow within the firm. Companies can also reduce agency costs between the company and future investors by accelerating adjustments to dividend payments, thereby protecting the interests of minority shareholders and reducing financing constraints[7]. However, some studies have also found that high dividend payments can lead to a decline in companies' internal governance capacity, causing executives to collude with large shareholders to transfer wealth within the company and increase agency costs [8]. Bond investors also fear that dividend payments will impact companies' ability to pay interest and principal on bonds, increasing bond spreads and tightening financing constraints [9].

Regarding the incentive capabilities of dividend payments, the existing literature concludes that dividend payments, as a hidden compensation for executives, motivate executives to better maintain the company's operations and optimize the company's knowledge management capabilities [10,11].Salimi and Della Torre found that dividend payments, as a collective form of compensation, can act more as an incentive when companies have low intellectual capital, which in turn promotes company innovation[12]. However, some studies have found that dividend tunneling behavior can cause large shareholders and executives to become more focused on short-term self-interests [8] and reduce their willingness to innovate, which in turn reduces corporate innovation [13]. Executives who receive excessive dividends are also more likely to transfer corporate risks to employees for their own benefit, and the incentive effect of dividend payments on executives decreases [14]. Employee-friendly companies increase future investments in the company's employees by reducing the amount of dividend payouts, thereby reducing the incentive effect of dividend payments on employees [15].

2.2 Influencing factors of green innovation

The scale of innovation capital investments and companies' willingness to innovate are the key factors for the success of green innovation projects and an important driver for the green transformation and modernization of companies[16,17].From the perspective of corporate governance capabilities, principal-agent problems such as executives' on-the-job consumption and shareholders' hollowing-out behaviors inhibit firms' green innovation [18,19]. In terms of firms' knowledge management capabilities, knowledge management factors such as intellectual capital stock and structural stability, green cognitive ability, and knowledge breadth also have a significant impact on firms' green innovation [20–22]. In addition, previous studies have found that independent director networks, as one of the tools of internal corporate governance, can effectively perform advisory and supervisory functions, which is beneficial for companies by reducing agency costs, enhancing knowledge exchange and sharing, and promoting green innovation [23]. Knowledge spillover, as one of the ways of knowledge application and dissemination in enterprises, can improve the knowledge management capability of enterprises, enhance the willingness of R&D personnel to innovate, and promote green innovation persistence[24].

Across the literature, there is relatively extensive research in the existing studies on both the economic consequences of dividend payments and the influencing factors of green innovations, but there are still some deficits. First, existing studies have not reached a consistent conclusion about the economic consequences of dividend payments, and fewer studies have examined the impact of dividend payments on the persistence of green innovations. How dividend payments affect the persistence of green innovations is currently unknown. Second, the existing literature ignores whether independent director networks and knowledge spillovers can play a moderating role in the persistence of green innovations under dividend governance and incentive instruments. Therefore, it is necessary to include the network of independent directors and knowledge spillover in the analytical framework of dividend payment for green innovation persistence. Finally, existing studies have paid less attention to the impact of different types of dividend payments to shareholders on the persistence of green innovations. Due to the shareholder structure, the dividend income of majority shareholders, managers and minority shareholders differs in amount, so it is necessary to examine whether the effects of dividend payments from different types of shareholders differ on the persistence of green innovation. Therefore, from the perspective of governance capacity and knowledge management capacity, this paper clarifies the impact and mechanisms of dividend payment on green innovation persistence and discovers the “black box” of dividend payment on green innovation persistence. The paper also analyzes the moderating effects of independent director networks and knowledge spillovers on the relationship between the two, as well as investigates the heterogeneity of dividend payments on the persistence of green innovations under different types and firm characteristics. This paper enriches the literature on dividend payments and green innovation. This can help companies recognize that optimal dividend payments can serve as an effective governance tool and incentive to promote the development of green innovation. Additionally, it provides data support to encourage companies to pay moderate dividends and improve corporate governance and knowledge management capabilities.

 

Comments 2: Chapter 2. Theoretical analysis and research hypothesis (145) should be renumbered so that it is chapter number 3 and the numbers of other chapters should be changed.

 

Response 2: We really appreciate your valuable comments. With the addition of the new Chapter 2 (literature review), we have renumbered the subsequent chapters sequentially.

 

Comments 3: In the last chapter, Conclusion (893), a paragraph on research limitations and recommendations for future research is missing, so it should be added at the end of this chapter.

 

Response 3: We really appreciate your valuable comments. Based on your suggestions, we added research limitations and future research at the end of the last chapter. The details in the manuscript are as follows. [Manuscript page 27, paragraph 4, lines 1015 -1043]

 

However, there are some limitations of this paper. First, the research in this paper focuses on the impact of dividend payment on the persistence of green innovations. Its essence is to study the effect of dividend payment as a governance and incentive tool for listed companies to promote the green transformation of the real economy. However, existing studies have found that promoting the sustainable development of the green economy requires not only increasing green innovation performance, but also reducing the risk of green innovation, improving resource efficiency, promoting innovation spillovers, and increasing the business value of the green economy [25,26]. Future research could further investigate whether dividend payments can promote the persistence of green innovations while reducing the risk of green innovations, improving the efficiency of resource use, and achieving effective spillover effects of green innovations within the same region. This means that, on the basis of this paper, the further positive effects of dividend payments in the broader area of the green economy will be further discussed. Secondly, dividend is just one way for shareholders and management of listed companies to receive monetary benefits. Major shareholders and management can also achieve excess returns through trading behavior on the capital market or the intra-group market[27]. How do these excess benefits affect companies' green innovations? There are fewer studies in this area. Future research could further examine the impact of different forms of benefits, such as excess benefits for large shareholders and private benefits for management, on the persistence of green innovations and also examine whether dividend payments can play an interactive role in this context. Finally, this study uses Chinese listed companies as a research sample, which can to some extent reflect the relationship between dividend payments and green innovation in Asian countries. However, the dividend policies of developed countries such as the United States and the United Kingdom are different from those of China. Research results may differ if relevant data from other countries are adopted as a research sample. Future research could attempt to collect relevant data from multiple countries to examine in depth the differences in the impact of dividend payments on the persistence of green innovations in different countries.

 

Again, thank you for giving us the opportunity to strengthen our manuscript with your valuable comments and queries. We have worked hard to incorporate your feedback and hope that these revisions persuade you to accept our submission.

 

Reference

1. Driver, C.; Grosman, A.; Scaramozzino, P. Dividend Policy and Investor Pressure. Econ. Modelling 2020, 89, 559–576, doi:10.1016/j.econmod.2019.11.016.
2. Jiang, F.; Cai, X.; Jiang, Z.; Nofsinger, J.R. Multiple Large Shareholders and Dividends: Evidence from China. Pacific-basin Finance J. 2019, 57, 101201, doi:10.1016/j.pacfin.2019.101201.
3. De Cesari, A. Expropriation of Minority Shareholders and Payout Policy. The British Accounting Review 2012, 44, 207–220, doi:10.1016/j.bar.2012.09.002.
4. Colombo, O. The Use of Signals in New-Venture Financing: A Review and Research Agenda. J Manage 2021, 47, 237–259, doi:10.1177/0149206320911090.
5. La Porta, R.; Lopez‐de‐Silanes, F.; Shleifer, A.; Vishny, R.W. Agency Problems and Dividend Policies around the World. J. Finance 2000, 55, 1–33, doi:10.1111/0022-1082.00199.
6. Hail, L.; Tahoun, A.; Wang, C. Dividend Payouts and Information Shocks. J. Acc. Res. 2014, 52, 403–456, doi:10.1111/1475-679X.12040.
7. Ellahie, A.; Kaplan, Z. Show Me the Money! Dividend Policy in Countries with Weak Institutions. Journal of Accounting Research 2021, 59, 613–655, doi:10.1111/1475-679X.12363.
8. Bian, H.; Kuo, J.-M.; Pan, H.; Zhang, Z. The Role of Managerial Ownership in Dividend Tunneling: Evidence from China. Corporate Governance: An International Review 2023, 31, 307–333, doi:10.1111/corg.12478.
9. Aoki, Y. The Effect of Dividend Smoothing on Bond Spreads: Evidence from Japan. Int. Rev. Econ. Financ. 2023, 85, 621–637, doi:10.1016/j.iref.2023.02.018.
10. Minnick, K.; Rosenthal, L. Stealth Compensation: Do CEOs Increase Their Pay by Influencing Dividend Policy? Journal of Corporate Finance 2014, 25, 435–454, doi:10.1016/j.jcorpfin.2014.01.005.
11. Singh, S.K.; Gupta, S.; Busso, D.; Kamboj, S. Top Management Knowledge Value, Knowledge Sharing Practices, Open Innovation and Organizational Performance. Journal of Business Research 2021, 128, 788–798, doi:10.1016/j.jbusres.2019.04.040.
12. Salimi, M.; Della Torre, E. Pay Incentives, Human Capital and Firm Innovation in Smaller Firms. International Small Business Journal 2022, 40, 507–530, doi:10.1177/02662426211043237.
13. Kuang, X.; Li, Z.; Lin, H. Research on the Psychological Expectation Impact on Enterprise Innovation Under Mergers and Acquisitions Pressure: From the Evidence of Large Stock Dividends. Front. Psychol. 2021, 12, doi:10.3389/fpsyg.2021.744875.
14. Cumming, D.; Lu, F.; Xu, L.; Yu, C.-F. (Jeffrey) Are Companies Offloading Risk onto Employees in Times of Uncertainty? Insights from Corporate Pension Plans. J Bus Ethics 2024, doi:10.1007/s10551-024-05655-6.
15. Saeed, A. The Impact of Employee Friendly Practices on Dividend Payments: Evidence from Emerging Economies. J Bus Res 2021, 135, 592–605, doi:10.1016/j.jbusres.2021.07.009.
16. Bernstein, S.; Mcquade, T.; Townsend, R.R. Do Household Wealth Shocks Affect Productivity? Evidence from Innovative Workers During the Great Recession. J. Finance 2021, 76, 57–111, doi:10.1111/jofi.12976.
17. Yu, C.-H.; Wu, X.; Zhang, D.; Chen, S.; Zhao, J. Demand for Green Finance: Resolving Financing Constraints on Green Innovation in China. Energy Policy 2021, 153, 112255, doi:10.1016/j.enpol.2021.112255.
18. Keum, D.D. Innovation, Short-Termism, and the Cost of Strong Corporate Governance. Strategic Manage J 2021, 42, 3–29, doi:10.1002/smj.3216.
19. Zhang, X.; Song, Y.; Zhang, M. Exploring the Relationship of Green Investment and Green Innovation: Evidence from Chinese Corporate Performance. Journal of Cleaner Production 2023, 412, 137444, doi:10.1016/j.jclepro.2023.137444.
20. Cao, D.; Yu, Y. Top Management Team Stability and Enterprise Innovation: A Chairman’s Implicit Human Capital Perspective. Managerial and Decision Economics 2023, 44, 2346–2365, doi:10.1002/mde.3821.
21. Wang, W.; Yin, X.; Coles, R.; Chen, J. More Knowledge, Better Innovation? Role of Knowledge Breadth and Depth. Management Decision 2024, 62, 1576–1597, doi:10.1108/MD-06-2023-0910.
22. Li, B.; Yin, S.; Zhang, B. Incentive Mechanism of Multiple Green Innovation Behaviors of Equipment Manufacturing Enterprises: A Managers, Green Coordination Groups and Employees Perspective. PLOS ONE 2024, 19, e0300533, doi:10.1371/journal.pone.0300533.
23. Tawiah, V.; Gyapong, E.; Usman, M. Returnee Directors and Green Innovation. Journal of Business Research 2024, 174, 114369, doi:10.1016/j.jbusres.2023.114369.
24. Frigon, A.; Doloreux, D.; Shearmur, R. Drivers of Eco-Innovation and Conventional Innovation in the Canadian Wine Industry. Journal of Cleaner Production 2020, 275, 124115, doi:10.1016/j.jclepro.2020.124115.
25. Cainelli, G.; D’Amato, A.; Mazzanti, M. Resource Efficient Eco-Innovations for a Circular Economy: Evidence from EU Firms. Research Policy 2020, 49, 103827, doi:10.1016/j.respol.2019.103827.
26. Sun, Y.; Bi, K.; Yin, S. Measuring and Integrating Risk Management into Green Innovation Practices for Green Manufacturing under the Global Value Chain. Sustainability 2020, 12, 545, doi:10.3390/su12020545.
27. Enriques, L.; Gilotta, S. The Case Against a Special Regime for Intragroup Transactions. Eur Bus Org Law Rev 2023, 24, 471–506, doi:10.1007/s40804-023-00285-3.

 

Reviewer 3 Report

Comments and Suggestions for Authors

After thoroughly reviewing the article Dividend Payments And Persistence Of Firm Green Innovation: Evidence From China, here are my recommendations for improving the Methodology, Proposed Model, and Results sections:

The paper classifies dividend payments into three groups (dividends to controlling shareholders, managers, and small shareholders). However, the reasoning behind these categories, particularly how they relate to green innovation persistence, could be more explicitly connected to the theory. It would be helpful to elaborate on how each category of dividend payout is expected to influence different aspects of knowledge management and agency costs.

While the paper tests an inverted U-shaped relationship using a quadratic term, more explanation is needed on why this specific functional form was chosen. Why not explore alternative models, such as interaction terms between dividends and other firm characteristics (e.g., size, industry)? Providing a rationale for the quadratic approach would strengthen the theoretical foundation of the model.

The results confirm the inverted U-shaped relationship, but the implications of this finding remain underexplored. The article could benefit from a deeper discussion on what this non-linear relationship means for firms in practice in the field of Green Innovation. For instance, what level of dividend payout is optimal for fostering green innovation? More interpretation of the practical implications of these results would enhance the paper’s contribution to both academia and industry. Strengthening the analysis from a Green Innovation perspective would further enrich the study.

Author Response

Dear reviewer，                

We sincerely appreciate your professional review work on our manuscript, which we use to improve its quality. In response to your suggestions, we made extensive corrections to the previous manuscript, listed below. We also marked changes and additions in red in the revised manuscript.

Please see the attachment that is our reply to you.

Comments 1: The paper classifies dividend payments into three groups (dividends to controlling shareholders, managers, and small shareholders). However, the reasoning behind these categories, particularly how they relate to green innovation persistence, could be more explicitly connected to the theory. It would be helpful to elaborate on how each category of dividend payout is expected to influence different aspects of knowledge management and agency costs.

 

Response 1: We greatly appreciate your valuable comments and have added a new subsection to the “Theoretical analysis and research hypothesis” section: Heterogeneity analysis based on shareholder type. The combination of the theoretical analysis in this section with the subsequent empirical tests shows how different types of dividend payments affect the persistence of green innovations by affecting knowledge management and agency costs and thus the persistence of green innovations. The specific modifications in the manuscript are described below. [Manuscript page 8-9, lines 374 -404]

 

3.5. Heterogeneity Effects Based on Shareholder Type

Based on the different strategic positions of shareholders in the shareholder structure and business decisions of companies, shareholders can be divided into controlling shareholders, shareholding managers and minority shareholders. Based on the principal-agent theory, controlling shareholders are usually not directly involved in the company's business decisions, but delegate management to managers on their behalf [1]. Therefore, when controlling shareholders receive dividends, they can influence the second type of agency costs [2] and slightly less on knowledge management. For minority shareholders, a moderate dividend can provide an incentive to actively participate in company management. However, because minority shareholders are not directly involved in the day-to-day operations of the company, their interests can easily be violated by controlling shareholders and executives. Therefore, the dividend payment of minority shareholders has a smaller impact on agency costs and knowledge management, which in turn has a weaker impact on the persistence of green innovations.

Managers are the main decision makers in the company's day-to-day operations and knowledge management. Compared to controlling and minority shareholders, executives who receive modest dividend payouts can curb the on-the-job consumption and directly reduce Type I agency costs. Moderate dividend payout can also stimulate managers to increase the stock of intellectual capital and the breadth of green knowledge in the company, and increase the level of green cognition and innovation awareness of managers [3]. Therefore, modest dividend to managers have the greatest impact in terms of reducing agency costs and improving knowledge management, thereby making the most sensitive to the impact on the persistence of green innovations. However, when shareholding managers receive excessive dividend payments, the level of collusion between executives and controlling shareholders increases [4]. Excessive dividend payments to managers who own shares have a stronger negative impact on agency costs and knowledge management, which thereby has a stronger inhibiting effect on the persistence of green innovation. Therefore, the following hypothesis is proposed:

Hypothesis 5: Dividend payments by shareholding managers have the greatest influence on the persistence of green innovations compared to controlling shareholders and minority shareholders.

 

Comments 2: While the paper tests an inverted U-shaped relationship using a quadratic term, more explanation is needed on why this specific functional form was chosen. Why not explore alternative models, such as interaction terms between dividends and other firm characteristics (e.g., size, industry)? Providing a rationale for the quadratic approach would strengthen the theoretical foundation of the model.

 

Response 2: We greatly appreciate your valuable comments.

(1) We have added a description of the reasons for choosing the quadratic term model and how to use the quadratic term model to test the existence of an inverted U-shaped relationship between dividend payments and the persistence of green innovations in the “Model” section of the manuscript. The details in the manuscript are as follows. [Manuscript page 10, paragraph 1, lines 451 -454] [Manuscript page 10, paragraph 3, lines 465 -471]

 

Referring to the research of Haans[5] with the conventions of the previous literature, and in order to verify the relationship between dividend payments and green innovation is inverted U-shaped, this paper regresses dividend payments and their squared terms on green innovation persistence.

The coefficients α₁ and α₂ are the focus of this paper. If the estimated α₁ is positive and α₂ is negative and both are statistically significant, this suggests an inverted U-shaped relationship between DIV and PGI (OGI). Based on Haans[5], this article also uses the U-test test in the “Baseline regression” section to test and determine the sign and significance of the slopes of α₁+2α₂DIV_L and α₁+2α₂DIV_H , whether the turning points are within the confidence intervals or not, and to further determine whether or not an inverted U-curve relationship exists between DIV and PGI (OGI).

 

Based on the above methodology, detailed inverted U test results have been added to the “Baseline regression” section in the manuscript as follows. [Manuscript page 12, paragraph 1, lines 505 -509] [Manuscript page 12, paragraph 2, lines 513 -517]

 

Table 3 presents the regression results of the impact of dividend payments on corporate green innovation using Model (2). The first column shows the OLS regression results of dividend payments on green innovation output, while the third column shows the negative binomial regression results. The coefficients of DIV² are all significantly negative, while the coefficients of DIV are all significantly positive. The results of the U-test show that the effect of DIV on OGI is first positive (slope = 2.512, p-value < 0.001) and then negative (slope = -3.322, p-value < 0.001) The turning point of DIV is 0.861, which is within the 99% confidence interval [0.522, 1.769]. Haans' inverted U-shaped three-stage test  indicates an inverted U-shaped relationship between DIV and OGI [5].

The second column displays the OLS regression results of dividend payments on persistent green innovation, while the fourth column shows the Tobit regression results. Similar to the previous analysis, the coefficients of DIV² are all significantly negative, and the coefficients of DIV are all significantly positive. The results of the U-test show that the effect of DIV on PGI is first positive (slope = 13.254, p-value < 0.001) and then negative (slope = -16.561, p-value < 0.001). The turning point of DIV is 0.889, which is within the 99% confidence interval [0.706, 1.206]. Haans' inverted U-shaped three-stage test suggests that DIV has an inverted U-shaped relationship with PGI.

 

(2) You mentioned why didn't choose the interaction term between dividends and other company characteristics like size and industry. In this study, the interaction term of dividend with independent director network and knowledge spillover is constructed to test whether the independent director network and knowledge spillover moderate the relationship between dividend payment and green innovation persistence in the moderation effect test section. And referring to the study of Haans [5], the inverted U-shaped relationship is constructed by using two potential linear functions with one positive and one negative in the independent variables bounded by the mean of dividend payment. It examines the impact of the interaction between dividends and independent director networks and knowledge spillovers on the persistence of green innovations from the perspective of moderate dividends and excessive dividends. The details in the manuscript are as follows. [Manuscript page 21, paragraph 3, lines 819 -828]

 

Due to the impact of dividend payments on green innovation persistence being inverted U-shaped, in order to more intuitively examine the moderating effects of independent director networks and Knowledge spillover on the relationship between dividend payments and green innovation persistence, the sample is divided into low dividend group (DIV_Low) and high dividend group (DIV_High) based on the mean of dividend payments, and the following moderation effect model (8) is constructed, where Vit is the moderating variable of company i in year t, and other indicators are defined the same as in formula (2).

 

Furthermore, this paper uses a heterogeneous group regression test to examine the changes in dividend payment and green innovation persistence under different firm characteristics. Based on firm ownership and industry characteristics, this paper divides the sample for regression testing into state-owned enterprises and non-state-owned enterprises, as well as high-tech industries and non-high-tech industries. [Manuscript page 24-25, lines 896 -939]

 

 

Comments 3: The results confirm the inverted U-shaped relationship, but the implications of this finding remain underexplored. The article could benefit from a deeper discussion on what this non-linear relationship means for firms in practice in the field of Green Innovation. For instance, what level of dividend payout is optimal for fostering green innovation? More interpretation of the practical implications of these results would enhance the paper’s contribution to both academia and industry. Strengthening the analysis from a Green Innovation perspective would further enrich the study.

 

Response 3: We greatly appreciate your valuable comments. As you indicated, the previous manuscript lacked the validation and analysis of the optimal dividend payout, and we added the optimal dividend payout analysis to the results of the “Baseline regression” to explain the results of the baseline regression in more detail. The details in the manuscript are as follows. [Manuscript page 12, paragraph 3, lines 525 -531]

 

The impact of shareholder dividend payments on green innovation in enterprises follows an inverted U-shaped pattern, confirming hypothesis 1a. This suggests that as dividend payments transition from non-existent to present, they contribute to decreasing agency costs. This helps restrict the misuse of free cash flow by executives and provides financial security for green innovation projects. Modest dividend payout also improves knowledge management capabilities in various aspects such as intellectual capital, knowledge breadth and environmental awareness, and promotes green innovative corporate development. The optimal dividend payment ratio for promoting green innovation output is 86.13%, and the optimal dividend payment ratio for promoting persistent green innovation is 88.91%. If the dividend payment ratio of listed companies is maintained at about 86.13% or 88.91%, the governance and incentive effects of dividend payment at this time can be maximized. The optimal dividend payment can minimize agency costs, motivate the knowledge management ability of managers, and thus promote the output of green innovations and the persistence of green innovations.

 

Again, thank you for giving us the opportunity to strengthen our manuscript with your valuable comments and queries. We have worked hard to incorporate your feedback and hope that these revisions persuade you to accept our submission.

 

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