J Bus Ethics (2011) 104:361370
DOI 10.1007/s10551-011-0914-x
The Influence of Corporate Environmental Ethics on Competitive
Advantage: The Mediation Role of Green Innovation
Ching-Hsun Chang
Received: 19 February 2011 / Accepted: 23 May 2011 / Published online: 4 June 2011
Springer Science+Business Media B.V. 2011
Abstract This study utilizes structural equation modeling
(SEM) to explore the positive effect of corporate envi-
ronmental ethics on competitive advantage in the Tai-
wanese manufacturing industry via the mediator: green
innovation performance. This study divides green innova-
tion into green product innovation and green process
innovation. The empirical results show that corporate
environmental ethics positively affects green product
innovation and green process innovation. In addition, this
study verifies that green product innovation mediates the
positive relationship between corporate environmental
ethics and competitive advantage, but green process inno-
vation does not. Therefore, corporate environmental ethics
can not only affect competitive advantage directly, but also
influence it indirectly via green product innovation in the
Taiwanese manufacturing industry. Taiwanese manufac-
turing companies can increase their corporate environ-
mental ethics and green product innovation to enhance
their competitive advantages.
Keywords Corporate environmental ethics
Green
product innovation
Green process innovation

Competitive advantage
Introduction
Green innovation has become one of the important strate-
gic tools to obtain sustainable development in manufac-
turing industries because of the increasing environmental
C.-H. Chang (&)
Department of Business Administration, Tamkang University,
151 Ying-chuan Road, Tamsui, New Taipei City 25137, Taiwan
e-mail: dr.chang.ch@gmail.com
pressure. In previous times, investing in environmental
activities is an unnecessary investment. However, the strict
environmental regulations and popular environmentalism
have changed the competitive rules and patterns for com-
panies (Porter and van der Linde 1995). Green innovation
can be divided into green products and processes, including
the innovation in technologies that are involved in energy-
saving, pollution-prevention, waste recycling, green prod-
uct designs, or corporate environmental management
(Chen et al. 2006). If companies are willing to undertake
green innovation enthusiastically, they can obtain the
advantage from differentiation and low cost which can
even change the existing competitive rules (Porter 1981;
Porter and van der Linde 1995). Therefore, it is more
widely accepted that green management is profitable
nowadays (Porter and van der Linde 1995; Sharma 2000).
Being green is a catalyst for continuous innovation, new
market opportunity, and wealth creation (Walley and
Whitehead 1994). Green innovations may embody the con-
cept of environmental protection into the design and package
of products to increase their differentiation advantages
(Chen et al. 2006; Hart 1995). Investing resources on envi-
ronmental management would not only avoid the trouble of
protests or punishment about environmental protection, but
also enhance their production efficiency, develop new
environmental markets, and thereby increase their capabil-
ities of green innovation (Chen 2008a). Porter (1980) and
Barney (1991) defined competitive advantages of a company
as a condition under which competitors are unable to repli-
cate its competitive strategies executed by the company.
Previous research argues that the relationship between green
innovation and competitiveness is positive in Taiwanese
information and electronics industries (Chen et al. 2006).
Green innovations can enhance the product value and, thus,
offset the costs of environmental investments. Eventually,
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362
green innovations improve resources productivity and make
companies more excellent (Porter and van der Linde 1995).
Environmental management is getting important for com-
panies in the dynamic global environment, and more com-
panies are willing to put more efforts on developing green
innovations. Therefore, developing green innovations is a
winwin solution for the conflict between economic devel-
opment and environmental protection.
Green innovation can improve the performance of
environmental management to satisfy the requirement of
environmental regulations in Taiwan (Chen et al. 2006).
However, research which deals with the antecedent of
green innovation is scant in professional literature. This
study examines corporate environmental ethics as an
antecedent of green innovation, thereby providing insight
into green innovation which plays a mediating role
between corporate environmental ethics and competitive
advantage in Taiwanese manufacturing industry. Barney
(1986) argued that if a firms culture is valuable, unique,
and imperfectly imitable, then its culture can provide sus-
tainable competitive advantages. Green management is not
only as a defensive mechanism to retain legitimacy, but
also as a centerpiece of an organizations mission to attain
sustainable development (Marcus and Fremeth 2009).
Corporate environmental ethics is one of the key elements
of organizational culture which is associated with innova-
tiveness (Peng and Lin 2008). Corporate environmental
ethics formalizes corporate value and expectation for eth-
ical behavior, so it is a driving force for green innovation
and competitive advantage.
The structure of this study is as follows. In the second
section, a literature review is discussed and five hypotheses
are also proposed in this section. In the third section, this
study describes the methodology, the sample and data
collection, and the measurements of the constructs. In the
fourth section, the descriptive statistics, reliability of the
measurement, factor analysis, correlation coefficients
between constructs, and the results of measurement and
structural model are shown. In the fifth section, this study
mentions the discussions about the findings and implica-
tions, and possible directions for future studies.
Literature Review and Hypothesis Development
Corporate Environmental Management
Companies may determine to adopt environmental man-
agement because of external environmental pressures.
Although neoclassical economists think maximizing
shareholders wealth as companies main goal (Friedman
1970), institutional theory pays attention to the impacts of
external institutions about firms strategies (Hoffman 1997).
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C.-H. Chang
It indicates that companies social objective is not always
profit maximization, and their activities usually meet
external pressures for legitimacy. To gain the trust of
external institutions, companies have a good reason to green
their products and to undertake green innovations.
According to resource-based view (RBV), competitive
advantage results from the key resources and capabilities of
companies (Barney 1991; Orsato 2006). RBV argues that
environmental social responsibility can become a key
capability that leads to a sustained competitive advan-
tage (Hart 1995). There are several environmental forces
impacting firms operation which are stakeholder activism
and environmentalism, competitive pressures, national
environmental policies, and international environmental
regulations (Rugman and Verbeke 1998). Thus, companies
have to carry out environmental management to comply
with international environmental regulations and consumer
environmentalism (Berry and Rondinelli 1998). Hence,
environmental management can be an important element of
a firms strategies, and it should be considered as a unique
capability of firms from the RBV logic (Hart 1995).
Prior literature on corporate social responsibility posits
that companies have social responsibilities that may rein-
force their economic objectives (Wood and Jones 1995).
Companies undertake environmental management because
they hope to be socially responsible. Although corporate
environmental management may not probably increase
profits in the short term, it could have economic payoffs in
the long term (Hart and Ahuja 1997). Additionally, stake-
holder theory argues that firms should take into account
the interests of their multiple stakeholders to formu-
late their strategies to gain the trust and support from their
key stakeholders (Freeman 1984; Mitchell et al. 1997). If
firms only pay attention to economic goals, incorporating
environmental management into their strategies may be
impossible (Drumwright 1994). Firms should undertake a
long-term sustainable thinking that relies on non-economic
goals as well as institutional and stakeholder pressures
(Prakash 2002).
Corporate environmental management allows compa-
nies to shape environmental competitive rules and thereby
to reap first-mover advantages (Peattie 1992; Peattie and
Ratnayaka 1992). Adopting environmental management
usually forces firms to apply strict environmental standards
into their green products or processes which can create
high-entry barriers (Barrett 1991). Firms could get support
from external institutions and key stakeholders and further
obtain competitive advantages (Vogel 1995). Hence, the
positive relationship between competitive advantage and
corporate environmental activities can be supported from
the previous literature about institutional theory, stake-
holder theory, RBV, and corporate social responsibility
(Prakash 2002).
The Mediation Role of Green Innovation
The Positive Effect of Corporate Environmental Ethics
on Green Product and Process Innovation
Green innovation is the improvement of products or pro-
cesses about energy-saving, pollution-prevention, waste
recycling, green product designs, and corporate environ-
mental management in the field of environmental man-
agement (Chen et al. 2006). This study divides green
innovation into green product innovation and green process
innovation. Green innovation can enhance the performance
of environmental management to satisfy the requirements
of environmental protection. A company devotes to
develop green innovation can not only meet the environ-
mental regulations, but also build up the barriers to the
other competitors (Barney 1991; Chen et al. 2006). Previ-
ously, many companies thought investing in environmental
management was an unnecessary investment (Porter and
van der Linde 1995). Recently, there are more positive
associations between corporate environmental ethics and
green innovation. Companies should change their strategies
and operations so that they can comply with the trend of
environmentalism. Companies with high-environmental
ethics are prone to increase resource productivity through
green innovation to make up the environmental costs (Chen
et al. 2006). Green innovation can improve product value
and, thus, offset the costs of improving environmental
impact. Ultimately, green innovation can further raise
resources productivity and make companies more com-
petitive (Porter and van der Linde 1995).
Companies require the motivation and ability to pro-
duce creative and innovative ideas to develop new prod-
ucts or processes (Chen and Huang 2009). Previous
studies pointed out that the well-defined policies and
processes in companies have positive effect on their
innovation (Stewart 1994). Therefore, well-defined envi-
ronmental policies can facilitate and integrate the opera-
tions among different departments in companies and solve
the environmental problems (Porter and van der Linde
1995). Corporate environmental ethics highlights the role
of proactive environmental management (Weaver et al.
1999b). The environmental ethics in a company can
influence innovation of environmental technology and
business operation (Greeno and Robinson 1992; Schle-
gelmilch et al. 1996). This study argues that corporate
environmental ethics plays an important role in the green
innovation of a company. Top management concerns
relate positively to the scope and speed of a firms
responses to environmental issues (Eiadat et al. 2008). The
role of management is crucial in establishing a companys
norms and expectations about ethics (Tushman and
OReilly 1997). Based on RBV, outstanding corporate
culture which is typically valuable, rare, inimitable, and
non-substitutable can be viewed as one of key resources to
363
generate sustainable competitive advantage (Barney
1986). Corporate environmental ethics is regarded as one
kind of superior corporate culture to attain sustainable
development. Hence, corporate environmental ethics of
companies can stimulate their proactive environmental
actions that can facilitate their green innovations (Chen
et al. 2006; Porter and van der Linde 1995). Consequently,
this study implies the following hypothesis:
Hypothesis 1 (H1) Corporate environmental ethics is
positively associated with green product innovation.
Hypothesis 2 (H2) Corporate environmental ethics is
positively associated with green process innovation.
The Positive Effect of Green Product and Process
Innovation on Competitive Advantages
Competitive advantages is defined as a condition which
competitors are not able to replicate its competitive strat-
egies executed by the company, nor are competitors able to
acquire the benefit that the company obtains by means of
its competitive strategies (Barney 1991; Coyne 1986;
Porter 1980). Value, rareness, imitability, and unsubstitut-
ability are the characteristics of resources of companies
which are helpful for innovation and companies can exploit
them to gain competitive advantages (Learned 1969; Porter
1981). Innovation can create isolation mechanisms
which protect profit margins and allow benefits to be
gained for companies. Innovation is a key source of com-
petitive advantage in the era of knowledge economy
(Daghfous 2004; Prajogo and Ahmed 2006). Innovation
enables companies to create and deploy their capabilities
that support the long-run business performance (Teece
2007). Successful innovation can make external imitation
more difficult and allow firms to sustain their advantages
better (Garca-Morales et al. 2007).
Companies pioneering in the green innovation can obtain
the competitive advantages and enable them to sell their
environmental technologies or services, to improve their
corporate images and even to create new markets (Chen
et al. 2006; Hart 1995, 1997; Peattie 1992; Porter and van
der Linde 1995). Companies investing more commitments
in environmental management and green innovation
actively can not only minimize production waste, but also
enhance the overall productivity, increase corporate repu-
tation, and thereby increase corporate competitive advan-
tages under the trends of the popular environmentalism of
consumers and severe international regulations of envi-
ronmental protection (Berry and Rondinelli 1998; Chen
et al. 2006; Porter and van der Linde 1995). Moreover,
green innovation can create isolation mechanisms which
protect profit margins and allow benefits to be gained for
companies.
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364
In this study, green innovation is divided into green
product innovation and green process innovation. There are
two sources of competitive advantage: differentiation and
low cost (Porter 1980). A company can use differentiation
strategies to create unique features for its new products.
Differentiation strategy can facilitate companies to pay off
ecological investments (Orsato 2006; Chen et al. 2006).
Green product innovation of a company can improve
product design, quality, and reliability with respect to
environmental concern which can yield a better chance to
differentiate its green products such that the company can
charge higher prices and make better profit margins for
their green products (Chen 2008a). A company can adopt
green product innovation to enhance its green image (Chen
2010). Therefore, the company can obtain competitive
advantage through green product innovation (Chen et al.
2006). On the other hand, green process innovation can
reduce the cost for companies. Previous literature argues
that pollution is the concrete evidence of inefficient uses of
resources (Porter and van der Linde 1995; Chen 2011).
Investing more resources in green process innovation can
not only minimize production waste, but also enhance
resource efficiency (Porter 1980; Porter and van der Linde
1995). Companies can adopt green process innovation to
enhance resource productivity by means of material saving,
energy decreasing, waste recycling, and resource reducing
(Chen 2008a). Green process innovation can not only
prevent costly pollution, but also reduce resource expense
and overall cost (Orsato 2006; Berrone 2009). Companies
can continue to undertake green process innovation to raise
their manufacturing efficiency and productivity such that
they can obtain low cost advantage (Chen 2008a). A
company can adopt green process innovation to satisfy its
stakeholders (Chen 2008a). Thus, companies can enhance
its competitive advantage through green process innovation
(Chen et al. 2006). Based on the statements above, this
study implies the two following hypotheses:
Hypothesis 3 (H3) Green product innovation is posi-
tively associated with competitive advantages.
Hypothesis 4 (H4) Green process innovation is positively
associated with competitive advantages.
The Positive Effect of Corporate Environmental Ethics
on Competitive Advantages
Corporate environmental ethics is the total ethical belief,
value, and norm of environmental concerns within a
company (Ahmed et al. 1998). Corporate environmental
ethics includes six elements: ethics codes, ethics commit-
tees, ethics communication systems, ethics officers, ethics
training programs, and disciplinary processes (Weaver
et al. 1999a). In the concerns about global environmental
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C.-H. Chang
impacts, corporations should invest resources to achieve
their goal of sustainable development. Corporate environ-
mental ethics formalize company values and expectations
for ethical behavior. Companies that have high environ-
mental ethics standards can not only avoid the troubles that
come with environmental protection protests, but also
improve their corporate images (Chen et al. 2006).
Therefore, environmental management may lead to long-
term economic gains. Competitive advantage is a condition
under which companies occupy some niche positions
where their competitors cannot imitate their successful
environmental strategies and they can gain the sustainable
benefits (Porter 1980; Porter and van der Linde 1995). A
company devoted to develop its corporate environmental
ethics can not only meet the environmental regulations, but
also build up the barriers to the other competitors. Com-
panies can enhance competitive advantage through
improving their intangible assets (Chen 2008b). Environ-
mental ethics can be regarded as companies intangible
assets. Companies can occupy some positions about envi-
ronmental protection where competitors cannot copy
their successful environmental strategies and gain the
sustainable benefits from these successful environmental
strategies. Therefore, this study proposes the following
hypothesis:
Hypothesis 5 (H5) Corporate environmental ethics is
positively associated with competitive advantages.
The Research Framework of the Study
This study summarizes the literature of environmental
management and green innovation into a new managerial
framework. The main purpose of this study is to explore the
positive effect of corporate environmental ethics on com-
petitive advantage in the Taiwanese manufacturing indus-
try via the mediator: green innovation performance. This
study also wants to explore whether green innovation has a
partial mediation effect between corporate environmental
ethics and competitive advantages. In this study, green
innovation can be divided into green product innovation
and green process innovation. This study shows the
research framework in Fig. 1.
Methodology and Measurement
Data Collection and the Sample
The unit of analysis in this study is the business level. This
research employed an empirical study, which collected
data from companies in the manufacturing industry of
Taiwan. The sample is randomly selected from 2008
The Mediation Role of Green Innovation
Green Product
Innovation H3
H1
Corporate H5 Competitive
Environmental Advantage
Ethics
H2 Green Process H4
Innovation
Fig. 1 Research framework
Business Directory of Taiwan. The respondents of the
questionnaires are the CEOs or the managers of environ-
mental protection, marketing, production, human resource,
or R&D departments in Taiwanese manufacturing compa-
nies. To heighten the valid survey response rate, the
research assistants called to each company which is sam-
pled, explained the objectives of the study and the ques-
tionnaire contents, and confirmed the names and job titles
of the respondents prior to questionnaire mailing. The
respondents were asked to return the completed question-
naires within 2 weeks through mailing.
The study refers to the past literatures to design ques-
tionnaire items for the survey. Prior to mailing to the
respondents, seven experts and scholars were asked to
modify the questionnaire in the first pretest. Subsequently,
the questionnaires were randomly mailed to 12 CEOs or
the managers of environmental protection, marketing,
production, human resource, or R&D departments in dif-
ferent Taiwanese manufacturing companies, and they were
asked to fill in the questionnaire and to identify the ambi-
guities in terms, meanings, and issues in the second pretest.
High-content validity is a necessary requisition for the
questionnaire in this study. To avoid common method
variance (CMV), the respondents of different constructs in
this study were different. The respondents of corporate
environmental ethics are managers of environmental
protection or human resource departments; those of green
product innovation are managers of marketing or R&D
departments; those of green process innovation are (4) the company has integrated its environmental plan,
managers of R&D or production departments; those of
competitive advantage are top managers or CEOs in Sadorsky 1999).
Taiwanese manufacturing companies.
Social desirability bias (SDB) which means the ten-
dency of respondents to fill in questionnaires in a manner
that is viewed favorably by others would affect the validity
of questionnaire survey (Nederhof 1985). In order to
reduce SDB for the four constructs, this study utilizes the
following three ways which include being anonymity,
promising of confidentiality, and asking to be honest
(Nancarrow et al. 2001). First, the respondents in this study
do not have to reveal their names, titles, and company
names in the questionnaires. It is meaningless for the
365
respondents to overstate or to exaggerate the four con-
structs in the questionnaires. The levels of SDB vary with
the level of anonymity in the questionnaires. The more
anonymity seems to be assured, the less SDB is detected
(Randall and Fernandes 1991). Second, this study keeps
confidentiality all the time. In the questionnaire, this study
does not only address the empirical results are only for the
academic purpose, but also promise of confidentiality for
the questionnaire survey. Third, the respondents were
asked to fill in the questionnaire honestly. The more hon-
esty seems assured, the less SDB is detected (Phillips and
Clancy 1972). Hence, there is no SDB in this study. 500
questionnaires are sent to CEOs or the managers of envi-
ronmental protection, marketing, production, human
resource, or R&D departments. There are 106 valid ques-
tionnaires, and the effective response rate is 21.2%.
Definitions and Measurements of the Constructs
The measurement of the questionnaire items in this study is
by use of five-point Likert scale from 1 to 5 rating from
strongly disagreement to strongly agreement. The ques-
tionnaire comprises five parts. The first part of the ques-
tionnaire is the measurement of the descriptive data of
companies (including the number of employees, year
founded, industry sector, etc.); the other four parts are
corporate environmental ethics, green product innovation,
green process innovation, and competitive advantage,
respectively. The measurements of the constructs are fur-
ther defined as follows.
Corporate Environmental Ethics
The measurement of corporate environmental ethics
includes four items: (1) the company has clear and concrete
environmental policies; (2) the companys budget planning
includes the concerns of environmental investment or
procurement; (3) the company has integrated its environ-
mental plan, vision, or mission to its marketing events; and
vision, or mission to companys culture (Henriques and
Green Product Innovation
The measurement of green product innovation includes
three items: (1) the company chooses the materials of the
product that produce the least amount of pollution for
conducting the product development or design; (2) the
company uses the fewest amount of materials to comprise
the product for conducting the product development or
design; and (3) the company would circumspectly delib-
erate whether the product is easy to recycle, reuse, and
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366 C.-H. Chang

decompose for conducting the product development or Table 1 Means, standard deviations, and correlations of the
design (Utterback and Abernathy 1975). constructs
Constructs Mean Standard (A) (B) (C)
Green Process Innovation deviation

(A) Corporate 3.875 0.727

The measurement of green process innovation includes environmental
three items: (1) the manufacturing process of the company ethics
effectively reduces the emission of hazardous substances or (B) Green product 3.953 0.623 0.574**
waste; (2) the manufacturing process of the company innovation
reduces the consumption of water, electricity, coal, or oil; (C) Green process 4.019 0.655 0.443** 0.464**
and (3) the manufacturing process of the company reduces innovation
the use of raw materials (Utterback and Abernathy 1975). (D) Competitive 3.692 0.687 0.500** 0.536** 0.321**
advantage
** p \ 0.01
Competitive Advantage

The measurement of competitive advantage includes six

items: (1) the quality of the products or services that the Table 2 Factor analysis of this study
company offers is better than that of the competitors Constructs Number of Number of Accumulation
products or services; (2) the company is more capable of items factors percentage of
R&D than the competitors; (3) the company has better explained
variance (%)
managerial capability than the competitors; (4) the com-
panys profitability is better; (5) the corporate image of the Corporate 4 1 72.459
company is better than that of the competitors; and (6) the environmental
ethics
competitors are difficult to take the place of the companys
Green product 3 1 70.504
competitive advantage (Barney 1991; Coyne 1986; Porter
innovation
and van der Linde 1995).
Green process 3 1 72.172
innovation
Competitive 6 1 66.935
advantage
Empirical Results

This study utilizes structural equation modeling (SEM) to

verify the research framework and hypotheses, and applies
Amos 7.0 to obtain the empirical results. SEM is a statis-
tical technique for testing and estimating causal relation-
ships in a more powerful way which takes into account the
modeling of interactions, nonlinearities, correlated inde-
pendents, measurement error, correlated error terms, mul-
tiple latent independents each measured by multiple
indicators, and one or more latent dependents also each
with multiple indicators. The antecedent of the research
framework in this study is corporate environmental ethics,
and the consequent is competitive advantage, while green
product and process innovation are mediators between
corporate environmental ethics and competitive advantage.
SEM of this study includes two levels of analysisthe
measurement model and the structural model.
The Results of the Measurement Model
This study demonstrates the means and standard deviations
of the constructs and the correlations among them in
Table 1. There are positive correlations among the four
constructs: corporate environmental ethics, green product
innovation, green process innovation, and competitive
advantage. This study shows the result of factor analysis in
Table 2. Every construct in this study can be classified into
only one factor in Table 2. This study applies confirmatory
factor analysis (CFA) to verify the validity and reliability
in the measurement model. The results of the CFA indicate
that the measurement model exhibits the acceptable levels
of the model fit (v2 = 151.8, d.f. = 97, v2/d.f. = 1.565,
CFI = 0.941, IFI = 0.943, RMSEA = 0.073).
There are several measures to confirm the reliability and
validity of the measurement. One measure of reliability is
to examine the loadings of each of the constructs indi-
vidual items. With respect to the quality of the measure-
ment model, the loadings (k) of items of the constructs
listed in Table 3 are all significant. Table 3 lists the
Cronbachs a coefficients for the measure of reliability. In
general, the minimum requirement of the Cronbachs a
coefficient is 0.7 (Hair et al. 1998). Since the Cronbachs a
coefficients of the four constructs are more than 0.7, the
measurement of this study is acceptable in reliability. In

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The Mediation Role of Green Innovation 367

Table 3 The items loadings (k) and the constructs Cronbachs a coefficients and AVEs
Constructs Items k Cronbachs a AVE The square root
of AVE

Corporate environmental ethics CEE1 0.734 0.872 0.585 0.765

CEE2 0.859**
CEE3 0.699**
CEE4 0.769**
Green product innovation GPDI1 0.862 0.781 0.605 0.778
GPDI2 0.909**
GPDI3 0.497**
Green process innovation GPRI1 0.787 0.806 0.583 0.764
GPRI2 0.775**
GPRI3 0.728**
Competitive advantage CA1 0.800 0.901 0.588 0.769
CA2 0.798**
CA3 0.737**
CA4 0.716**
CA5 0.756**
CA6 0.790**
** p \ 0.01

addition, it is also important to verify whether the validity correlations among all constructs in Table 1. Therefore, the
of the measurement is acceptable. There are three ways to discriminative validity of the measurement in this study is
verify the validity of the measurement. First, the study acceptable. Third, the AVEs of the four constructs are more
refers to previous studies to design questionnaire items. than 0.5 in Table 3. It means that the convergent validity of
Prior to mailing to the respondents, seven experts and the four constructs is acceptable. In sum, there are adequate
scholars modified the questionnaire in the first pretest. reliability and validity in the measurement of this study
Subsequently, the authors distributed the questionnaires to according to the above analysis.
12 CEOs or the managers of environmental protection,
marketing, production, human resource, or R&D depart- The Results of the Structural Model
ments in different Taiwanese manufacturing companies.
They fill in the questionnaires and to identify ambiguities This study verifies the empirical results of the hypotheses in
in terms, meanings, and issues in the second pretest. The this section. The results of the structural model are pre-
questionnaire of this study has high level of content sented in Table 4 and Fig. 2. The measures of overall fit
validity. Second, this study applies Fornell and Larckers indicate the fit of the structural model is acceptable
measure of average variance extracted (AVE) to access the (v2 = 93.654, d.f. = 90, v2/d.f. = 1.041, GFI = 0.907,
discriminative validity of the measurement (Fornell and CFI = 0.996, NFI = 0.911, RMSEA = 0.020). Adding or
Larcker 1981). The AVE measures the amount of variance deleting any paths in this research framework would not
captured by a construct through its items relative to the significantly improve the fit. The residuals of the covariance
amount of variance due to the measurement error. To sat-
isfy the requirement of the discriminative validity, the
square root of a constructs AVE must be greater than the
correlations between the construct and other constructs in Table 4 The results of the structural model
the model. For example, the square roots of the AVEs for Hypothesis Proposed effect Path coefficient Results
the two constructs, corporate environmental ethics and
H1 ? 0.692** H1 is supported
green product innovation, are 0.765 and 0.778 in Table 3
H2 ? 0.531** H2 is supported
which are more than the correlation, 0.574, between them
H3 ? 0.264* H3 is supported
in Table 1. This demonstrates there is adequate discrimi-
H4 ? 0.033 H4 is not supported
native validity between corporate environmental ethics and
H5 ? 0.344* H5 is supported
green product innovation. The square roots of all con-
structs AVEs in Table 3 of this study are all more than the * p \ 0.05, ** p \ 0.01

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368 C.-H. Chang

Fig. 2 Path coefficients

GPDI1 GPDI2 GPDI3

0.862 0.909**
0.497**
CA1 CA2 CA3

0.800 0.798** 0.737**

CEE1 CEE2

Green Product
0.734 0.859** 0.692** Innovation H3
H1
0.264*

Corporate
H5 Competitive
Environmental
0.344* Advantage
Ethics
0.033

H2 Green Process H4
0.699** 0.769** 0.531**
Innovation 0.716**
0.790**
CEE3 CEE4
0.756**
0.787 0.728**

CA4 CA5 CA6

0.775**

GPRI1 GPRI2 GPRI3

are also small and centered near 0. All of the five paths are
in Table 4. The results of the full model are shown in Fig. 2.
According to Table 4 and Fig. 2, the results indicate broad
support for most of the hypothesized effects in the research
model. Therefore, this study verifies that corporate envi-
ronmental ethics is a positive driver for green product
innovation. This study finds out that green product inno-
vation partially mediates the positive relationship between
corporate environmental ethics and competitive advantage.
This study also verifies that corporate environmental ethics
is a positive driver for green process innovation and com-
petitive advantage. However, green process innovation is
not supported to be significantly associated with competi-
tive advantage.
Conclusions and Implications
This study utilizes SEM to explore the positive effect of
corporate environmental ethics on competitive advantage
in the Taiwanese manufacturing industry via the mediator:
green innovation performance. In this study, green inno-
vation is divided into green product innovation and green
process innovation. Although many previous studies
explored the issues of innovation and competitive advan-
tages, few researches explored the relationship between
corporate environmental ethics and competitive advantage
and discussed the mediation role of green innovation.
The results of this study indicate that corporate envi-
ronmental ethics of companies is positively related to green
product and process innovation. The empirical results also
demonstrate that corporate environmental ethics positively
affects corporate competitive advantage. This study sug-
gests that companies should invest more resources to
enhance corporate environmental ethics because it is pos-
itively associated with green innovations and competitive
advantages. If companies want to develop their green
innovations and competitive advantages, they should raise
their corporate environmental ethics.
This study also explores the mediation effect of green
innovation which can be divided into green product and
process innovation. Green product innovation plays a
mediation role with respect to the positive relationship
between corporate environmental ethics and competitive
advantage, but green process innovation does not. For
Taiwanese manufacturing companies, green product inno-
vation is a differentiation strategy which enables them to
create new businesses. Green product innovation is able to
seize opportunities or to lead in the market. Environmental
consciousness of consumers facilitates the companies to
redesign existing products or to develop new ones which
meet the environmental regulations (Nidumolu et al. 2009).

123
The Mediation Role of Green Innovation
If companies are willing to undertake green product inno-
vation, they can obtain the advantage of differentiation and
even change the existing competitive rules to become one
of successful companies (Porter 1981; Porter and van der
Linde 1995). Furthermore, the design and package of green
products can increase their differentiation advantages
(Chen et al. 2006; Hart 1995; Shrivastava 1994, 1995). If
companies want to develop their competitive advantage,
they should raise their green product innovation.
On the other hand, green process innovation does not
play a mediation role between corporate environmental
ethics and competitive advantage in this study. Green
process innovation is regarded as a low-cost strategy in the
Taiwanese manufacturing industry. Companies develop
eco-friendly raw materials and components to reduce
waste. However, it is hard for consumers to understand
how much effort that the companies put in the process
improvement. Hence, there is no positive relationship
between green process innovation and competitive advan-
tage. Corporate environmental ethics can not only affect
competitive advantage directly, but also influence it indi-
rectly via green product innovation in the Taiwanese
manufacturing industry. Taiwanese manufacturing com-
panies should enhance their corporate environmental ethics
and green product innovation to increase their competitive
advantages.
The subject of this study covers the issues of corporate
environmental ethics, green innovation, and competitive
advantages, which respond to the new concept of green
management caring both aspects of environmental pro-
tection and economic development. Most of Taiwanese
manufacturing companies have few resources to deploy
and thereby often fail to meet the requirements and reg-
ulations of environmental protection. This would bring
Taiwanese manufacturing companies serious damages that
resulted from the failure to comply with the international
environmental regulations. However, this study finds that
investing many resources and efforts in the corporate
environmental ethics could eventually enhance their green
product innovation and competitive advantages in the
Taiwanese manufacturing industry. Therefore, this result
can contribute to Taiwanese manufacturing companies as
reference. Businesses should not shirk their duties under
the trends of strict environmental conventions and the
popular environmentalism of consumers. These environ-
mental trends could be turned into the momentum that
drives them to carry out environmental ethics, green
innovation and further create competitive advantages. The
research object of this study is the manufacturing industry
of Taiwan, so the future studies can focus on other
industries or areas and compare with this study. This study
is conducted in the Taiwanese context. It is an interesting
issue to test whether the hypotheses are supported in other
369
countries. In order to verify whether the hypotheses can be
generalized to the rest of the world, future studies can
select other countries as the research object and compare
with this study. This study verifies hypotheses by use of
questionnaire survey, only providing cross-sectional data,
so that this study cannot observe the dynamic changes of
environmental ethics, green innovation, and competitive
advantages in the different stages of the development of
the Taiwanese industry through longitudinal data. There-
fore, future studies can set forth toward the longitudinal
study to find out the differences of environmental ethics,
green innovation, and competitive advantages in the dif-
ferent stages of the development of the manufacturing
industry of Taiwan. Finally, this study hopes the research
results are beneficial to managers, researchers, or policy
makers in the manufacturing industry of Taiwan and
contribute to relevant studies and future researches as
reference.
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