Green Innovation Effects on Firm Performance with ESG Performance as Mediating and Financial Constraints as Moderating Variable

Eny Maryanti; Fauziatun  Najwa; Sarwenda  Biduri

doi:10.33005/jasf.v9i1.763

Authors

Eny Maryanti Muhammadiyah University of Sidoarjo
Fauziatun Najwa Muhammadiyah University of Sidoarjo
Sarwenda Biduri Muhammadiyah University of Sidoarjo

DOI:

https://doi.org/10.33005/jasf.v9i1.763

Keywords:

Green Innovation, Firm Performance, ESG Performance, Financial Constraints

Abstract

Purpose: This study aims to examine the impact of Green Innovation on firm performance, using ESG performance as the mediating variable and financial constraints as the moderating variable.

Method: This research used a numbers driven approach, working with existing data from 30 consumer goods companies (non-cyclical) on the Indonesia Stock Exchange between 2020 and 2024. The companies were handpicked based on specific criteria, and the dataset was an unbalanced panel. To crunch the numbers, the study used a multiple linear regression model analyzed with SPSS version 26.

Findings: The results showed a few key things. While Green Innovation didn't have any effect on a company's ESG Performance, it did have a strong, positive impact on overall Firm Performance. Interestingly, ESG Performance itself actually had a significant negative effect on Firm Performance. The research also found that ESG Performance does not act as a middleman in the link between Green Innovation and Firm Performance. On a different note, Financial Constraints were found to strengthen the effect of ESG Performance on Firm Performance, acting as a positive moderator.

Implications: From a managerial perspective, the findings indicate that green innovation can directly support better firm performance. This result provides a practical basis for managers to implement sustainability-oriented strategies, not only to improve ESG ratings or strengthen external recognition, but also because green innovation may create real business benefits for the company. From a theoretical perspective, this study enriches the accounting and management literature by providing additional evidence on the relationship between environmentally oriented innovation and corporate performance.

Novelty/Value: This study contributes by demonstrating that financial constraints do not necessarily hinder firm performance, rather in contexts where ESG implementation is sub-optimal, they can serve as a mechanism prompting firms to be more selective in allocating resources to ESG activities. Furthermore, the study provides evidence that green innovation can directly enhance firm performance without relying on improved ESG performance, thereby broadening the understanding of the value-creation pathways associated with green innovation.

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