Change starts within: does managerial ability matter to green innovation?

The paper investigates whether and how managerial ability influences corporate green innovation. Motivated by the centrality of green innovation to economic transformation and environmental sustainability, the authors note that prior work has focused on technological, market, institutional, and strategic drivers, with less direct evidence on the role of managerial ability. Drawing on the resource-based view (RBV), transformational leadership, and corporate social responsibility perspectives, the study posits that managerial ability is a unique strategic resource that can shape resource allocation, culture, and strategic direction toward sustainability. Countervailing theories (technological determinism, market orientation, institutional theory) suggest green innovation could be primarily driven by external technology trajectories, market demand, or regulatory pressures, downplaying managerial agency. The research question is thus whether managerial ability is positively related to green innovation and under what conditions this relationship is strengthened. Using a large panel of Chinese A-share listed firms (2008–2022), the authors measure managerial ability via DEA-based revenue efficiency net of firm characteristics and measure green innovation by green patent applications. They find a significant positive association, stronger in state-owned enterprises, firms with higher institutional ownership, stricter environmental regulatory environments, and less developed product markets. The study contributes by highlighting managerial ability as a strategic, internal driver of green innovation with important governance and policy implications.

The literature review situates managerial ability within several theoretical frameworks. From the resource-based view, managerial ability is an intangible, rare, and valuable firm resource that can be leveraged to build green innovation capabilities through effective sensing, seizing, and transforming of opportunities. Transformational leadership theory emphasizes management’s role in shaping culture and motivating environmentally oriented creativity. Corporate social responsibility theory links managerial choices on environmental policy and practices to green innovation outcomes. Complementary streams highlight the roles of coopetition, open innovation, and digitalization capabilities in enabling sustainable performance, implying the need for managerial capabilities to integrate these strategies. Measuring managerial ability has been challenging; Demerjian et al. (2012) propose a DEA-based method that isolates management’s contribution to revenue efficiency, enabling large-sample empirical research. Alternative perspectives argue that managerial influence may be limited: technological determinism (innovation driven by technological trajectories), market orientation (consumer demand drives green innovation), and institutional theory (responses to external regulatory pressures). Based on these views, the study proposes hypotheses: H1a: managerial ability is positively correlated with green innovation; H1b: managerial ability is not correlated with green innovation. Considering firm characteristics, the authors posit stronger effects in SOEs due to policy linkages and social responsibilities (H2a), and in firms with higher institutional ownership given long-term orientation and governance influence (H2b). Considering external factors, they posit stronger effects under stricter environmental regulation (H3a) and in less developed product markets where internal managerial impetus is more pivotal (H3b).

Data and sample: The authors analyze Chinese A-share listed firms from 2008 to 2022. Because managerial ability for year t requires t−1 inputs, data from 2007–2022 are used. Exclusions: financial firms, ST and *ST firms, and observations with missing data. Final sample: 2,455 firms and 15,457 firm-year observations. Continuous variables are winsorized at the 1% level annually. Green innovation data come from CNRDS; financials and other variables from CSMAR and Wind.

Managerial ability measure (independent variable): Following Demerjian et al. (2012), the measure is constructed in two steps. Stage 1: industry-level DEA computes firm efficiency using Sales as output and inputs including Cost of Goods Sold (COGS), Sales and Management expenses (S&M), Property, Plant and Equipment (PPE), Intangible assets (Intang), R&D expenses (R&D), and Goodwill (GW), with selected inputs lagged by one year. Firm efficiency is normalized within [0,1]. Stage 2: a Tobit regression of firm efficiency on firm characteristics (log total assets, market share, free cash flow indicator, firm age, business segment concentration, foreign currency indicator, and year dummies) is estimated by industry; the residuals represent managerial ability (MA).

Green innovation measures (dependent variables): Two proxies from CNRDS are used: total green patent applications (GP) and green invention patent applications (GIP), with GIP viewed as a more demanding form of innovation.

Empirical model: The main specification regresses next-year green innovation on MA and controls, including firm and year fixed effects, with standard errors clustered at the firm level. Controls include economic factors (SIZE, LEV, ROA, growth, asset turnover) and governance factors (employees, firm age, management pay, CEO-chair duality, top shareholder ownership, board independence). Heterogeneity analyses split samples by SOE ownership, institutional ownership proportion (high vs low by annual, industry median), environmental regulation intensity (provincial pollution control investment per value added; high vs low by annual median), and product market development (China Market Index Database; high vs low by annual median).

Robustness: The study implements propensity score matching (PSM), entropy balancing (EBM), and coarsened exact matching (CEM) to mitigate selection and specification concerns; adds industry fixed effects; employs alternative MA measures (industry rank-based and median-split dummy); and includes additional controls (board size, performance per employee, management gender ratio, average TMT age, CSR and environmental reporting indicators, key pollution monitoring status, ISO14001 certification, R&D expense ratio, provincial per capita GDP). Additional analyses assess economic consequences (ROE) and ESG ratings (Huazheng) in relation to MA and green innovation.

• Descriptive statistics: mean GP = 6.544 (SD 19.162), mean GIP = 3.482 (SD 11.759); MA mean = −0.006. N = 15,457 firm-years across 2,455 firms.
• Baseline regressions (firm and year FE, clustered SEs): MA is positively associated with green innovation. For GP, MA coefficient ≈ 3.458–3.906 (t ≈ 2.57–2.78). For GIP, MA coefficient ≈ 2.694–2.957 (t ≈ 3.13–3.22). Results are significant and robust with/without controls, supporting H1a and rejecting H1b.
• Heterogeneity by firm characteristics: • SOE vs non-SOE: Stronger effects in SOEs. For GP, MA = 12.224 (SOE) vs 2.476 (non-SOE); difference 9.748, p < 0.001. For GIP, MA = 10.627 vs 1.714; difference 8.913, p < 0.001. Supports H2a. • Institutional ownership: Stronger where institutional investor share is high. For GP, MA = 6.318 (high) vs 2.297 (low); difference 4.021, p = 0.067. For GIP, MA = 5.249 (high) vs 1.649 (low); difference 3.600, p = 0.009. Supports H2b.
• External environment heterogeneity: • Environmental regulation: Stronger under high regulation. For GP, MA = 6.282 (high) vs 1.432 (low); difference 4.850, p = 0.029. For GIP, MA = 4.540 vs 1.476; difference 3.064, p = 0.033. Supports H3a. • Product market development: Stronger in less developed markets. For GP, MA = 6.536 (low marketization) vs 2.148 (high); difference −4.388 (p = 0.068). For GIP, MA = 4.573 vs 1.973; difference −2.600 (p = 0.082). Supports H3b.
• Robustness checks: Results persist under PSM, EBM, and CEM matching; with industry fixed effects; and using alternative MA measures. Inclusion of additional firm- and environment-level controls does not alter conclusions.
• Additional analyses (consequences): Managerial ability is positively associated with ROE and ESG scores. Green innovation (GP, GIP) also relates positively to ROE and ESG, and interactions indicate that green innovation is an important channel through which managerial ability translates into financial and sustainability benefits.

The findings indicate that managerial ability functions as a strategic resource that enhances firms’ capacity to initiate and scale green innovation, consistent with the resource-based view and transformational leadership perspectives. By improving resource allocation, shaping pro-environmental culture, and navigating complex regulatory and market conditions, capable managers drive higher volumes of green and green-invention patenting. The effects are amplified where government policy linkages and social missions are stronger (SOEs), where governance favors long-termism and monitoring (higher institutional ownership), and in external contexts that either heighten compliance and innovation pressures (stricter environmental regulation) or provide weaker market incentives (less developed product markets), making managerial agency more pivotal. These results challenge perspectives that attribute green innovation primarily to external technological or market forces, underscoring the role of internal managerial capabilities. The practical implications suggest aligning governance structures and policy environments to empower capable managers to pursue sustainability-oriented innovation strategies.

The study shows a robust, positive link between managerial ability and corporate green innovation using a large panel of Chinese A-share firms (2008–2022) and a DEA-based measure of managerial ability. The relationship is stronger in SOEs, firms with higher institutional ownership, under stricter environmental regulation, and in less developed product markets. Robustness checks via multiple matching methods, alternative measures, and expanded controls corroborate the results. Additional analyses reveal that managerial ability is associated with improved financial (ROE) and ESG outcomes, with green innovation serving as a key conduit. Contributions include extending RBV by identifying managerial ability as a strategic internal driver of green innovation, enriching determinants-of-green-innovation research with governance and ownership insights, and clarifying contextual contingencies. Future research directions highlighted by the authors include exploring cross-industry and regional heterogeneity and examining how managerial diversity shapes green innovation outcomes.