Journal of Cleaner Production 176 (2018) 110e118

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

The drivers of eco-innovation and its impact on performance:

Evidence from China
Wugan Cai*, Guangpei Li
School of Economics and Management, Fuzhou University, No. 2, Xueyuan Road, Daxue New District, Fuzhou District, Fuzhou, Fujian 350108, China

a r t i c l e i n f o a b s t r a c t

Article history: This study sheds light on the driving forces of eco-innovation and the effects on firm performance. We
focus on eco-innovation, which provides customer and business value, and contributes to sustainable
development while decreasing environmental costs and impacts. The study uses data collected from 442
Keywords: Chinese firms to investigate the relationship among the drivers, eco-innovation behavior, and firm
Eco-innovation performance. The results reveal that certain factors (i.e., technological capabilities, environmental
Drivers
organizational capabilities, a market-based instrument, competitive pressures, and customer green de-
Environmental performance
mand) contribute to the development of eco-innovation. Competitive pressure provides firms with the
Economic performance
Sustainable development
greatest incentive to adopt eco-innovation, followed by a market-based instrument, technological ca-
pabilities, customer green demand, and environmental organization capabilities. The market-based in-
strument is effective in inducing eco-innovation, while a command and control instrument does not.
With regard to the adoption of eco-innovation, we show that eco-innovation behavior can significantly
enhance a firm's environmental performance, and, through environmental performance, has an indirect
positive impact on its economic performance. These findings support the “Porter hypothesis,” and have
several implications for both policy makers and business managers.
© 2017 Elsevier Ltd. All rights reserved.

1. Introduction
The global environmental crisis, including the lack of resources,
environment degradation, and pollution, has pushed countries all
over the world to pay greater attention to sustainable development.
At the same time, eco-innovation has become an inevitable choice
for firms as a means to gain a competitive advantage and pursue
sustainability under increasing environmental pressure. Compared
to traditional innovation, eco-innovation has a so-called double ex-
ternality problem, namely, innovation spillover in the research and
innovation phases and environmental spillover in the adoption and
diffusion phases (Rennings, 2000), which thereby reduce the in-
centives for its adoption. To further complicate the situation, the
driving forces of eco-innovation, eco-innovation behavior, and per-
formance remain unclear. Thus, there is a need for clarification as
well as specific management and policy approaches that foster eco-
innovation. In China, as an example, this situation is of a particularly
critical nature as many environmental policies have been established
* Corresponding author.
E-mail addresses: 87893400@163.com, 39921170@qq.com (W. Cai).
to meet the soaring demands of the economy while seeking to create
a low emission and sustainable environment.
A number of researchers in the field of innovation, management,
environmental economics, stakeholder theory, and institutional
theory have investigated the primary factors that drive eco-
innovation. Insights from the field of innovation indicate that
technology push and market demand pull are the most important
factors in general (Horbach, 2008). Studies in the field of manage-
ment suggest that corporate social responsibility internalizes
environmental protection responsibility as part of a firm's strategy
through increasing investments in eco-innovation (Bansal and
Hunter, 2003; Kesidou and Demirel, 2012; Potoski and Prakash,
2003). Other scholars have concentrated on the importance of
organizational capabilities, particularly environmental manage-
ment systems (EMS) in stimulating eco-innovation (Horbach, 2008;
Rehfeld et al., 2006; Wagner, 2008). The assumption is that
implementation of EMS facilitates eco-innovation because it can
enhance environmental awareness and increase operating effi-
ciency within a firm. Studies close to the field of environmental
economics, mainly from the micro level, analyze the impact of
environmental regulation (e.g., standards, emissions charges, sub-
sidies, and permits) on a firm's eco-innovation behavior

https://doi.org/10.1016/j.jclepro.2017.12.109
0959-6526/© 2017 Elsevier Ltd. All rights reserved.
 W. Cai, G. Li / Journal of Cleaner Production 176 (2018) 110e118
(Brunnermeier and Cohen, 2003; Frondel et al., 2007; Kammerer,
2009). Several recent stakeholder theoretical studies state that
stakeholder pressure is an important factor that triggers a com-
pany's adoption of eco-innovation. Moreover, numerous studies (Li,
2014; Zhu and Geng, 2013) applying institutional theory suggest
institutional isomorphism promotes the reproduction of organi-
zational innovation behaviors. All institutional pressures provide
firms with important incentives to respond to environmental
issues.
On the other hand, although a growing body of literature ex-
plores the relationship between environmental behavior and firm
performance through both case studies and econometric analysis,
the results remain inconsistent (Frondel et al., 2007: Porter and Van
der Linde, 1995). The traditional economic propose that any envi-
ronmental improvement effort make a firm to absorb an external
cost and create an offsetting effect: namely, diminishing returns
(Gray and Shadbegian, 1998). In contrast, the amendment school of
thought, represented by Porter, assumes that environmental pol-
icies may encourage regulated firms to develop technological
innovation activities and induce more advantages, which may result
in higher profits at a later date (Porter and Van der Linde, 1995).
In recent years, the study of how innovation drivers affect eco-
innovation behavior, and other related variables, has become
increasingly important at the industry level. Many researchers have
recognized the importance of the resource-based view and institu-
tional theory in explaining a firm's eco-innovation behavior (e.g.,
Bansal and Roth, 2000; Chen, 2008; Li, 2014; Sarkis et al., 2010). The
resource-based view proposes that firms respond to external change
based on their own internal resources and abilities (Oliver, 1997).
Institutional theory focuses on external pressures and social expec-
tations to explain a firm's innovation behavior. Based on a combina-
tion of the two aforementioned distinct but complementary theories,
this study extends the discussion about the drivers of eco-innovation
behaviors. Following the theoretical framework, a large-scale survey
is performed to explore the effects of the driving forces and eco-
innovation behaviors on environmental and economic performance.
In line with Sarkis et al. (2010) and DiMaggio and Powell (1983), two
dimensions of internal resources (technological capabilities and
environmental organizational capabilities) and three forms of insti-
tutional pressure, namely, coercive pressure, normative pressure, and
mimetic pressure, are examined in terms of their individual influence
on eco-innovation practices and performance. Specifically, this study
addresses the following research questions: Do technological capa-
bilities, environmental organizational capabilities, a command and
control instrument, a market-based instrument, customer green de-
mand, and competitive pressures work as the driving forces that
trigger implementation of eco-innovation? If so, what are their spe-
cific effects? Which driver is the most effective to induce eco-
innovation in firms? Can eco-innovation behaviors really achieve
economic performance for firms?
To answer the aforementioned research questions, this study
provides three contributions to the current eco-innovation litera-
ture. First, the theoretical framework mixes the resource-based
view and institutional economics to examine the complexity of
factors stimulating eco-innovation decisions as well as perfor-
mance. Second, the examination of environmental regulation as
two individual components (i.e., a command and control instru-
ment and a market-based instrument) also leads to valuable in-
sights and various implications for researchers and policymakers.
Third, we test environmental performance as mediator between
eco-innovation behaviors and economic performance.
The paper is structured as follows: Section 2 provides further
details on our theoretical framework to develop hypotheses on the
factors and outcomes of eco-innovation. Section 3 contains the
survey data and methodology. Section 4 presents the main results
111
of our study and leads to the discussion, followed by a conclusion
and implications of the research in Section 5.
2. Theoretical framework and research hypotheses
The resource-based view suggests that a firm's resources need
to be rare, valuable, imperfectly imitable, and non-substitutable to
sustain a competitive advantage (Barney, 1991). These resources are
important determinants of eco-innovation, and we refer to the two
forms of critical internal resources identified by Sarkis et al. (2010),
namely, technological capabilities and environmental organiza-
tional capabilities.
Technological capabilities play an important role in generating
innovation (Baumol, 2002; Pavitt, 1984). These capabilities are
comprised of tangible technologies, intangible experience, and the
specialized knowledge the firm has to develop green products and
processes. The process of eco-innovation is actually environmental
knowledge accumulation, integration, and utilization. Firms with
highly developed eco-innovation capabilities may make full use of
knowledge spillover in its cluster network, learn from others to
improve its eco-innovation ability, and achieve further eco-
innovation success in the future. Baumol (2002) describes these
path dependencies with the expression, “innovation breeds inno-
vation.” In other words, firms that have been innovative in the past
are more likely to adopt innovation in the present (De Marchi,
2012; Monde jar-Jimenez et al., 2015). Therefore, we postulate that:
Hypothesis 1. Technological capabilities are positively associated
with eco-innovation.
EMS can be understood as environmental organizational capa-
bilities, which assist a firm in achieving successful implementation
of eco-innovation (e.g., Blind, 2012; Rehfeld et al., 2006; Rennings
et al., 2006; Wagner, 2008). EMS refer to the environmental pro-
grams and practices of a firm that comprise a systematic,
comprehensive, planned, and documented approach, focusing on
the reduction of the firm's environmental impact. More specifically,
EMS build organizational capabilities and practices, such as pollu-
tion prevention, source reduction, recycling, and green product
design, which help firms promote operating efficiency aimed at
improved environmental quality in combination with decreased
costs. That is, EMS, and in particular, certified EMS, directly facili-
tate the adoption of eco-innovation by mandating firms to establish
environmental goals and management structures as well as pro-
grams by providing the critical environmental information (Melnyk
et al., 2003). For example, since 1990, General Electric (GE) has
launched EMS to achieve continuous improvement in environ-
mental, health, and safety performance. EMS have become a part of
the corporate culture of GE. Over the years, GE has provided envi-
ronmental training for vendors and required them to comply with
environmental regulations. Therefore, the concept of an eco-
innovation management culture will be imperceptibly spread by
the interaction process of firms and stakeholders. Thus, the capa-
bility to eco-innovate is thereby enhanced. Based on the findings of
prior research, we propose the following:
Hypothesis 2. Environmental organizational capabilities are
positively associated with eco-innovation.
Eco-innovation depends not only on internal drivers but also on
many external pressures. Based on institutional theory, the external
pressures encompass three types. The first is coercive pressure,
associated with environmental regulation, and is typically exerted by
the government. The second is normative pressure, and refers to a
firm's need to increase its abilities to satisfy its stakeholders such as
customers and suppliers. The third is mimetic pressure, and refers to
112 W. Cai, G. Li / Journal of Cleaner Production 176 (2018) 110e118
the need to imitate other business leaders; this occurs when firms
feel competitive pressure from successful competitor action.
Environmental regulations are typically associated with coercive
pressure. Most firms implement only a minimum amount of eco-
innovation, just enough to fulfill environmental regulations. The
famous Porter hypothesis (Porter and Van der Linde, 1995) from the
dynamic perspective, assumes that more stringent and properly
designed environmental regulation may encourage firms to develop
green technology, processes or products, improve management
methods, and partially or completely offset the compliance costs of
environmental regulation. That is, firms that exceed minimum
compliance could enjoy first mover advantages by pioneering the
innovation. On the other hand, new classical economic theory be-
lieves that a market-based instrument is more effective in spurring
eco-innovation and superior to a command and control instrument
(Jung et al., 1996; Requate and Unold, 2003), however, Li (2014)
found that the command and control instrument works as a driver
of eco-innovation, and the market-based instrument does not. Thus,
we can conclude that the effect of regulations on eco-innovation is
not always coincident. Kemp (1997) posited that all regulation in-
struments are effective to motivate eco-innovation, but the specific
effects may vary based on the context of the implementation of such
instruments. To obtain more insights into the effects of environ-
mental policy instruments on eco-innovation, we divided them into
two categories: command and control and market-based. Therefore,
we postulate the following hypotheses:
Hypothesis 3a. A command and control instrument positively
affects eco-innovation.
Hypothesis 3b. A market-based instrument positively affects eco-
innovation.
Customer green demand is an important normative pressure.
Meeting the needs, demands, and expectations of customers is a
critical motivator for a firm to implement eco-innovation (Horbach,
2008; Wagner, 2008). First, generally, customers are willing to pay
more for green products, therefore, following the customer green
demand can create a market niche and a business opportunity for a
firm's environmentally friendly operations. Second, customer green
demand reduces the cost of eco-innovation. Due to the complexity
and uncertainty of green products, the cost of cultivating positive
customer perceptions of new green products is high. Primary green
demand strengthens the consumer's recognition of new green
products and reduces the cost of market exploitation. Third,
customer green demand can provide abundant practice opportu-
nities for the firm to reduce negative effects of technology on the
environment. Thus, we propose the following:
Hypothesis 4. Customer green demand positively triggers eco-
innovation.
Imitative pressure originates from rival firms based on their
development of new materials, technology, and equipment, and
spurs firms to improve their innovation abilities. Firms are more
likely to be “greener” in competitive markets through adopting
new green products or management processes, which may give
them a competitive advantage in the future. Thus, if a firm attracts
customers and gains a relative competitive advantage through eco-
innovation, other firms will look to imitate its behavior to maintain
their market share. Thus, external competitive pressure that en-
genders improved product quality and environmental performance
plays a critical role in the growing demand for eco-innovation
abilities. Therefore, we postulate the following hypothesis:
Hypothesis 5. Competitive pressures are associated with eco-
innovation.
As described earlier, internal drivers such as firm resources,
structures, and core capabilities, determine the choice of eco-
innovation, and external pressures induce firms to adopt proac-
tive environmental practices. In addition, several studies have
found that eco-innovation provides a positive and significant ef-
fect on a firm's environmental and economic performance
(Clemens, 2006; Zeng, 2009). Eco-innovation is a strategy for
providing customer and business value that contributes to sus-
tainable development and decreases environmental costs and
impacts (Cai and Zhou, 2014). On the one hand, eco-innovation
strategy can bring about the so-called “double externality”: sig-
nificant common knowledge spillover and environmental spill-
over. It also replaces existing products with greener products,
thereby reducing adverse environmental impacts. On the other
hand, it can improve resource efficiency, save raw materials, and
reduce pollution penalty costs for a firm when it meets environ-
mental regulations. Furthermore, eco-innovation products can
lead to extra profits while firms develop eco-innovation to
establish a green image, implement product diversity, and in-
crease market share in the future. Firms that introduce eco-
innovation enjoy higher levels of revenue per employee than
companies that do not (Hojnik and Ruzzier, 2016). Based on the
above analysis, we postulate the following:
Hypothesis 6a. Eco-innovation positively affects environmental
performance.
Hypothesis 6b. Eco-innovation positively affects economic
performance.
According to Watson (2004), firms focus on enhancing four
kinds of environmental performance through eco-innovation
practice to improve economic performance. The first is a reduc-
tion in internal failure costs that include employee compensation,
toxic substance recovery, excessive packaging costs, and under
utilization of resources, among others. The second is a reduction in
external failure costs that include the loss of market share, waste
treatment costs, and the cost of pollutants in the surrounding
community. The third is the saving of all environmental monitoring
costs. The fourth is a reduction in prevention costs including
worker training and environmental management costs. Therefore,
we postulate the following hypothesis:
Hypothesis 7. Environmental performance is a mediator between
eco-innovation behavior and economic performance.
We establish a conceptual model of the relationships among the
driving factors, eco-innovation behavior, and performance, as
shown in Fig. 1.
3. Data and methodology
3.1. Data collection
The questionnaire was designed to collect information on
driving factors, eco-innovation behavior, and eco-innovation per-
formance. It included 10 questions about a firm's core information.
In order to ensure the validity of the questionnaire, 10 experienced
researchers reviewed and commented on the clarity, structure, and
appropriateness of the questionnaire items. With the help of the
Fujian environmental protection agency, 30 corporate chief exec-
utive officers (CEOs) were selected from the government database
to comment on the questionnaires with respect to clarity and
completeness ahead of our general survey. Then, based on the
feedback from these 10 researchers and 30 CEOs, we modified the
instrument to improve the validity of the measures.
 W. Cai, G. Li / Journal of Cleaner Production 176 (2018) 110e118 113

Technological
capabilities

Environmental
organizational H1
capabilities
Environmental
performance
Environmental regulations H2
Command and H6a
control
instrument H3a
H7
Market-based H3b Eco-innovation
instrument

H6b
H4 Economic
Customer
green demand performance
H5

Competitive
pressures

Fig. 1. The conceptual model of the relationships among drivers, eco-innovation, and performance.

The questionnaires, completed by senior managers at the firms,
were collected in three ways: (a) corporate CEOs selected in MBA and
EMBA classes at five universities in Fujian received appropriate
training to ensure a common understanding of the survey questions;
they then completed the questionnaires in face-to-face interviews;
(b) we visited preselected local enterprises and guided one manager
at each enterprise in completing the questionnaire; and (c) some
questionnaires were completed via e-mail. From a random sample of
1000 firms, 505 firms completed the survey, representing a response
rate of 50.5%. Due to missing responses (or the same) to some of the
variables, the useful sample was reduced to 442. We used SPSS 17.0
to analyze the collected questionnaire data.
3.2. Sample characteristics
and control instrument, the market-based instrument, customer
green demand, competitive pressures, eco-innovation behavior,
environmental performance, and economic performance. The data
were generally collected utilizing Likert-type scales. Respondents
were asked to complete all the items using a five-point Likert scale
ranging from 1 ¼ Strongly Disagree to 5 ¼ Strongly Agree.
Five items were used to measure technological capabilities and
were adapted from Wang (2009), and four items, also adapted from
Wang (2009), were selected to measure environmental organiza-
tion capabilities. According to Hojnik and Ruzzier (2016), the
command and control instrument can be measured by three items,
as can the market-based instrument. We measure customer green
demand using four items selected from Agan et al. (2013) and

The sample characteristics are presented in more detail in Table 1

Table 1. Our sample, according to the Chinese legislation, includes Sample characteristics.
97 state firms, 67 collective firms, 166 foreign-funded firms, 63 Characteristics Number of Percentage of
private firms, and 49 other type firms. Most of the companies firms firms
included in our sample had been in operation more than eight years Type of firm State ownership 97 21.9%
(264 companies); the other 178 companies had less than eight Collective ownership 67 15.24%
years of operation. In terms of total assets, 61 firms reported less Foreign-funded 166 37.62%
than 40 million yuan, 126 reported between 40 million and 100 Private ownership 63 14.29%
Other types 49 10.95%
million yuan, 143 firms reported between 100 million and 400
Firm age Between one and eight 178 40.27%
million yuan, and 112 companies reported above 400 million yuan. years
In terms of the rate of new product output, eight firms reported less Over eight years 264 59.73%
than 5%, 93 firms between 5% and 10%, 187 firms between 10% and Total assets (yuan) 40 million or less 61 13.81%
Between 40 million and 126 28.57%
20%, 114 firms between 20% and 50%, and 40 reported more than
100 million
50%. In terms of industry, 318 companies were in the Between 100 million and 143 32.38%
manufacturing industry, followed by 95 companies in the service 400 million
industry, and the final 29 in the other category. The companies in Above 400 million 112 25.24%
the sample were mature enough to have the capability to imple- Rate of new 5% or less 8 1.9%
product output Between 5% and 10% 93 20.95%
ment eco-innovation practices.
Between 10% and 20% 187 42.38%
Between 20% and 50% 114 25.72%
3.3. Measurement development Above 50% 40 9.05%
Type of industry Manufacturing industry 318 71.95%
Service-related industry 95 21.49%
There were nine latent variables measured: technological ca- Other (not specified) 29 6.56%
pabilities, environmental organization capabilities, the command
114 W. Cai, G. Li / Journal of Cleaner Production 176 (2018) 110e118

measure competitive pressure with three items adapted from Li
(2014). In terms of measuring eco-innovation behaviors, five
items were adapted from Chen et al. (2006). Finally, the four items
selected to measure environmental performance and the four items
to measure economic performance were adapted from Li (2014).
3.4. Common method variance test
Since a firm's senior manager answered all the items on the
questionnaire, the process could be prone to common method
variance (CMV), which may cause systematic measurement errors.
To identify CMV, we use Harman's single factor test, which is one of
the most widely used methods suggested by Podsakoff et al. (2003).
All the items on the 442 questionnaires were used for exploratory
factor analysis. The un-rotated principal components factor analysis
results reveal that the first factor only accounted for 33.44% of the
variance and none of the factors accounted for a majority, which
demonstrate an absence of CMV.
3.5. Reliability and validity analysis
Table 2 reports all the measurement items, factor loading,
average variance extracted (AVE), and the values of Cronbach's
alpha. The Cronbach's alphas for the latent variables were bigger
than 0.7, which indicates a high reliability for the questionnaire
(Wortzel, 1979). Content validity for the survey instrument was
supported by the related theoretical literature and in-depth
managerial interviews. All factor loadings were greater than 0.5,
which shows a high convergent validity. To access the construct
validity, we conducted confirmatory factor analysis (CFA) using
AMOS21. 0. The model fit indices were c2 ¼ 934:452,
c2 =df ¼ 1:620, TLI ¼ 0.875, CFI ¼ 0.886, and RMSEA ¼ 0.050, which
suggests that the measurement model was acceptable. The square
root of the AVE for each construct was greater than 0.5.
4. Results and discussions
The structural equation model (SEM) can simultaneously eval-
uate the relationships of multiple latent variables, observe vari-
ables, and take into account measurement error in the evaluation
process (Hair et al., 1998). Moreover, SEM attempts to explain the
relationships among multiple latent variables, and thus, tests the
structure of the interrelationships. There are nine latent variables in
our study. Thus, we apply SEM to examine all the hypothesized
relationships. The statistical results of the eco-innovation model
are depicted in Table 3. The goodness-of-fit indices are as

Table 2
Measurement items, factor loadings, AVEs, Cronbach's alphas for latent variables.

Measure items Factor AVE Cronbach's

loading alpha

Technological capabilities (TC) .602 .897

TC1: The ecological production technology of your firm is very convenient. .721
TC2: Your firm is easy to get eco-innovative consulting services from (planning, evaluation, and training, etc.). .717
TC3: Your firm has some successful eco-innovation experience. .708
TC4: Your firm has the necessary resources for the design of green products. .701
TC5: Your R&D team has more mature and strong design capabilities. .681
Environmental organization capabilities (EOC) .616 .821
EOC1: Your firm has a documented plan about eco-innovation. .642
EOC2: Your firm has made rules to guide the ecological management. .629
EOC3: Your firm gives rewards to people who have made contributions to energy conservation and emission reduction. .624
EOC4: Your firm regards environmental audit as a management norm. .614
Command and control instrument (CCI) .652 .794
CCI1: Our products should meet the requirements of national environmental regulations. .695
CCI2: Our products should meet the requirements of international environmental regulations. .637
CCI3: Our production processes should meet the requirements of international environmental regulations. .609
Market-based instrument (MBI) .585 .752
MBI1: The government provides preferential tax policy on eco-innovation. .571
MBI2: The government propagates environmental protection. .570
MBI3: The government provides preferential subsidies for eco-innovation. .557
Customer green demand (CGD) .678 .733
CGD1: The environment is an important issue for our valued customers. .685
CGD2: Our valued customers often put forward environmental issues. .681
CGD3: Customer green demands stimulate us in our environmental efforts. .665
CGD4: Our customers have specific demands about environmental issues. .612
Competitive pressure (CP) .701 .754
CP1: We create a green image compared to competitors through environmental concepts. .731
CP2: We increase market share through environmental concepts. .644
CP3: We acquire competitive advantage through environmental concepts. .679
Eco-innovation behavior (EB) .642 .722
EB1: Low energy consumption such as water, electricity, gas, and petrol during production/use/disposal. .761
EB2: Recycle, reuse, and remanufacture material. .733
EB3: Use of cleaner technology to create savings and prevent pollution. .702
EB4: The manufacturing process of the firm effectively reduces the emissions of hazardous substances and waste. .681
EB5: The manufacturing process of the firm reduces the use of raw material. .656
Environmental performance (EP) .670 .707
EP1: Reduction of exhaust gas, wastewater, solid waste. .712
EP2: Decrease in consumption of hazardous/harmful/toxic materials. .618
EP3: Decrease in frequency for environmental accidents. .653
EP4: Increase in environmental patents. .704
Economic performance (ECP) .714 .735
ECP1: Improved capacity utilization. .616
ECP2: Decrease in fee of waste treatment. .694
ECP3: Increase in revenue by selling scrap materials and equipment. .711
EPC4: Decrease in loss from environmental accidents. .728
 W. Cai, G. Li / Journal of Cleaner Production 176 (2018) 110e118 115

Table 3 (p < .01). This indicates that it is sensible for a firm to provide green
The resulting eco-innovation model with estimated relationships. products through eco-innovation to establish a green image, increase
Path Path coefficient Standard path C.R. P its competitive advantage, and achieve sustainable development
coefficient within environmental constraints. Current literature largely regards
EB ) TC .432 .151 2.857 .004 environmental regulation as the most common and frequent trigger
EB ) EOC .213 .109 1.951 .024 factor. In contrast, our study found competitive pressure (standard
EB ) CCI .157 .201 0.78 .435 path coefficient of 0.298) as the primary driver of eco-innovation
EB ) MBI .712 .213 3.35 .000
rather than environmental policy instruments in an increasingly
EB ) CGD .328 .136 2.422 .015
EB ) CP .904 .298 3.036 .002 competitive environment. Today, firms are searching for many more
EP ) EB .447 .061 7.304 .000 opportunities to differentiate themselves from the competition
ECP ) EP .756 .259 2.923 .003 through eco-innovation activities to acquire a competitive advantage.
ECP ) EB .106 .128 0.823 .411
In addition, customer green demand has a positive impact on
c2 719.383 TLI .950
eco-innovation behavior (p < .05), which is consistent with other
df 581 CFI .954
c2 =df 1.238 RMSEA .026 research (Kammerer, 2009; Kesidou and Demirel, 2012). With the
increase in the income levels and living standards of Chinese cus-
tomers, their green consumer awareness is stronger than ever
before and they may accept higher prices for environment-friendly
products. More than 50% of Chinese consumers are willing to buy
follows:c2 ¼ 719:383,c2 =df ¼ 1:238, TLI ¼ 0.950, CFI ¼ 0.954, and environment-friendly products at the same price as general prod-
RMSEA ¼ 0.026, which show that the model is a good fit for the ucts, and nearly 50% are willing to buy environment-friendly
data. The statistical results support H1, H2, H3b, H4, H5, H6a, and products at higher prices (Liu and Yu, 2010). In order to meet
H7, whereas, H3a and H6b were rejected. customer green demand, firms should adjust their products and
We found that technological capabilities had a significant positive market strategies and regard eco-innovation as a tool to increase
impact on eco-innovation behavior (p < .01), which confirms the market share in the future.
belief that, “innovation breeds innovation.” In other words, the Overall, the empirical evidence reveals that competitive pres-
accumulation of tangible technologies and special knowledge will sure is the primary driver of eco-innovation, followed by a market-
induce further eco-innovation. This is because the firms with more based instrument, technological capabilities, customer green
environmental knowledge will make full use of knowledge spillover demand, and environmental organization capabilities.
in their cluster networks and this is prone to leading to eco- We have inferred that eco-innovation behavior can significantly
innovation. In line with prior research, environmental organization promote a firm's environmental performance. However, there is no
capabilities exert a significant positive impact on eco-innovation significant direct positive impact on economic performance. Eco-
(p < .05). Firms need to adapt to environmental changes to innovation can reduce environmental damage via improvements
continue sustainable development. Environmental organization ca- from green products, processes, technologies, and systems. There-
pabilities include the ability of a firm to create new green products fore, the implementation of eco-innovation can reduce energy
and processes to respond to internal and external change (Helfat, consumption, waste, and environmental accidents as well as
1997). EMS are important environmental organization capabilities improve a firm's environmental image and environmental perfor-
that track environmental information for internal and external mance. However, due to the high costs and risk of eco-innovation, it
stakeholders of a firm, and may integrate eco-innovation elements, is difficult to obtain economic benefits in the short run. Thus, eco-
utilize organizational resources, and perform coordinated tasks for innovation has no significant direct influence on financial
the purpose of increasing compliance and reducing waste. performance.
Interestingly, we find a market-based instrument generates sig- On the other hand, through environmental performance, eco-
nificant positive impact on the adoption of eco-innovation practices innovation behavior has an indirect positive impact on economic
(p < .01), while a command and control instrument does not work performance. That is, environmental performance plays a medi-
(p > .1). In the past 30 years, economic growth has been the priority in ating role between eco-innovation behavior and economic perfor-
China and, consequently, has caused environmental and resource mance. As described earlier, environmental regulations promote
problems. Health concerns about environmental issues have eco-innovation. These discoveries support the Porter hypothesis
increased substantially in recent years. As a result, China has imple- that environmental regulation triggers the introduction of cleaner
mented many environmental regulations on air pollution, water technologies and environmental improvements. It also improves
pollution, clean production, energy saving, and recycling; it imple- the efficiency of production processes and products, compensates
mented its most stringent environmental law in 2015, and intends to for the compliance and innovation costs, and encourages higher
establish a national carbon market in 2017. A market-based instru- company growth and profitability.
ment uses fiscal incentives to obtain the desired pollution reduction,
and includes positive incentives for eco-innovation. However, com- 5. Conclusions
mand and control instruments impose rigid technological and
pollution constraints on firms and do not trigger eco-innovation, Based on the resource-based view and institutional economics,
which is different from the findings in previous research (Li, 2014). we offer a holistic view of the drivers of eco-innovation that previous
If the firm complies with the standard, it will not adopt eco- research has failed to obtain. Moreover, our analysis of the direct and
innovation to reduce pollution. In other words, command and con- indirect effects of eco-innovation behavior on performance provides
trol instruments are not sufficient, as they do not produce continuous valuable guidelines for developing well-aligned eco-innovation.
incentives for eco-innovation and have little effect on technology This study focuses on an investigation of the relationship of the
diffusion (Li and Tao, 2012). Similarly, Jung et al. (1996) and Requate drivers of eco-innovation behavior and performance using a new
and Unold (2003) also found ineffective enforcement from com- dataset of 442 Chinese firms in 2017. Our analysis reveals interesting
mand and control instruments in terms of environmental technology. new insights. First, technological capabilities, environmental orga-
Furthermore, the empirical result also shows that competitive nization capabilities, a market-based instrument, customer green
pressure has a significant positive impact on eco-innovation behavior demand, and competitive pressure work as the driving forces that
116 W. Cai, G. Li / Journal of Cleaner Production 176 (2018) 110e118
trigger eco-innovation; and their specific effects are 0.151, 0.109,
0.213, 0.136 and 0.298, respectively. Competitive pressure is the main
driving force in the adoption of eco-innovation, followed by a
market-based instrument, technological capabilities, customer green
demand, and environmental organization capabilities. Eco-
innovation is not only triggered by institutional pressure but also
by a firm's internal resources, and this has implications for govern-
ments and business managers. As China works to further develop
eco-innovation, it cannot rely solely on institutional factors (e.g.,
environmental regulations, competitive pressures, and customer
green demand). It is critical that environmental policymakers
implement flexible measures to enhance internal resources as well.
Current government policies, such as centralized green public pro-
curement plans, that aim to enhance eco-innovation through de-
mand, should be aligned with powerful eco-innovation systems and
platforms that provide the necessary support to strengthen the
technological capabilities of innovative firms.
It is indispensable to provide firms with a favorable and fair
environment to reduce the technological dependence on the original
trajectory and provide effective technical guidance as well as offer
more convenient financing for clean equipment. More importantly,
to improve the ecological technological capabilities, the government
should encourage schools to provide majors in eco-innovation at the
undergraduate, masters, and doctorate levels and promote the
publishing of books and reference materials in this field. Moreover,
China should encourage certification of EMS, such as EMAS or
ISO14001, instead of relying only on subsidies or tax incentives to
encourage eco-innovation. Policymakers and firms must place more
emphasis on explorative activities, and the creation of new envi-
ronmental organization capabilities to foster improvements in
eco-innovation rather than in the development of the present pro-
duction systems. Finally, firms should be aware of the importance of
their eco-innovation technological capabilities, and consider their
internal R&D abilities and their complementarity with external
sources before adopting this innovation strategy. They need to pro-
mote collaborative networks among academia, governments, and
consumers to enhance their technological capabilities.
Second, a market-based instrument rather than a command and
control instrument produced significant positive impact on the
adoption of eco-innovation practices. Therefore, on the one hand,
the government should reinforce rather than weaken the intensity
of the market-based instrument. In terms of this diversified
market-based instrument, the effective combination of govern-
ment regulation and a market mechanism should be promoted that
includes an administrative penalty, the halting of production, the
amalgamation of enterprise, emissions trading systems (ETS),
environmental taxes, research and development expenditure
(R&D) subsidies, and green compensation policies, among others.
ETS will be an important market-based instrument in China.
Therefore, carbon allowance allocation should be gradually
improved over time and should emphasize both equity and
development and fully consider provincial differences in emissions
and economic contexts. In addition, it is necessary to improve the
development of a legal framework and market regulation mecha-
nism for ETS to support the carbon market's sound and steady
development. On the other hand, the government should guide
firms to consciously follow the restrictions of environmental
regulation and motivate the development of a green industry.
Capital loans should be provided for green industries on the
premise of guaranteed returns.
Third, eco-innovation behaviors effectively achieve economic
performance for firms. Environmental performance plays a mediating
role between eco-innovation behavior and economic performance.
This means that promoting environmental performance and
improving economic performance are not a zero-sum game. For a long
time, government and business managers considered that eco-
innovation would only increase investment costs as it reduced the
adverse effects on the environment. Thus, there was no impetus for a
firm to adopt eco-innovation, especially when China's economy
entered a “new norm,” which increased the downward pressure on
economic growth. However, our findings contradict this. Eco-
innovation behavior is proven to be helpful in boosting a firm's
environmental performance, and then, indirectly enhancing its eco-
nomic performance.
There are several limitations to the present study that warrant
consideration. First, although the research included companies of
various sizes from different sectors, the sample was taken only from
China. The findings may not be applicable to a wider context. Thus,
it would be useful to carry out multi-sample research, which in-
cludes firms from different countries. Another limitation is that we
apply cross-sectional research, which describes the current state.
The effect of eco-innovation on economic performance is lagged, so
a longitudinal study combined with a long-term case study would
be conducive to add more accurate implications with respect to the
relationship among the driving factors, the eco-innovation behav-
iors, and performance. The third limitation is that we assume all the
observations (firms) are independent (Hojnik and Ruzzier, 2016).
However, eco-innovation in the same industry would likely be
more aligned than in other industries. The firms and the industry
are in a “nested” structure, where the analyzed firms are nested
within the analyzed industry. The hierarchical linear model (HLM)
contains firm measures as well as industry measures within which
the firms are grouped. Therefore, we suggest that future research
should apply HLM to test the errors of the first level of firm dif-
ferences and the second level of industry differences.
Author contributions
All authors contributed equally to the writing of this paper. All
authors read and approved the final manuscript.
Conflicts of interest
The authors declare no conflict of interest.
Acknowledgments
The research described in this paper has been supported by the
National Natural Science Foundation of China (71503049) and the
project of “Fujian Provincial Key Laboratory of finance and tech-
nology innovation.” We would like to thank the anonymous ref-
erees for insightful comments that led to improvements in the
paper.
Appendix. Questionnaire on eco-innovation in China
Dear ladies and gentlemen,
Hello!
The aim of this investigation is to analyze the relationship of
driving factors, eco-innovation behavior and the performance in
China. This can provide a decision making reference for govern-
ment to draw up rules to assist firms to implement eco-innovation
on their own initiative.
The data in this questionnaire is for scientific research only, and
not for commerce purposes. We shall adhere to scientific research
ethics and will not disclose business information to anybody for any
purposes. We sincerely look forward to your participation in this
study. Thank you for your help.
School of Economics and Management, Fuzhou University.
 W. Cai, G. Li / Journal of Cleaner Production 176 (2018) 110e118 117

Basic Firm Information (continued )

Please indicate to what extent you agree or disagree with the following
(1) The name of your firm: statements (1-strongly disagree to 5-strongly agree)
(2) The headquarters location (area) of your firm: CGD2: Our valued customers often put forward 1 2 3 4 5
(3) The type of your firm: environmental issues.
①State ownership ②Collective ownership ③Foreign- CGD3: Customer green demands stimulate us in our 1 2 3 4 5
funded ④Private ownership ⑤Other environmental efforts.
CGD4: Our customers have specific demands about 1 2 3 4 5
(4) The establishment term of your firm:
environmental issues.
①Between one and eight years ②Over eight years Competitive pressure (CP)
(5) Total assets of your firm (in RMB/yuan): CP1: We create a green image compared to competitors 1 2 3 4 5
①40 million or less ②Between 40 million and 100 through environmental concepts.
CP2: We increase market share through environmental 1 2 3 4 5
million ③Between 100 million and 400 million
concepts.
④Above 400 million CP3: We acquire competitive advantage through 1 2 3 4 5
(6) The rate of new product output: environmental concepts.
①5% or less ②Between 5% and 10% ③Between 10% Eco-innovation behavior (EB)
and 20% EB1: Low energy consumption such as water, electricity, 1 2 3 4 5
gas, and petrol during production/use/disposal.
④Between 20% and 50% ⑤Above 50%
EB2: Recycle, reuse, and remanufacture material. 1 2 3 4 5
(7) The main industry your firm operates in: EB3: Use of cleaner technology to create savings and 1 2 3 4 5
①Manufacturing industry ②Service-related indus- prevent pollution.
try ③Other (not specified) EB4: The manufacturing process of the firm effectively 1 2 3 4 5
reduces the emissions of hazardous substances and
(8) Your department:
waste.
(9) Your e-mail: EB5: The manufacturing process of the firm reduces the 1 2 3 4 5
(10) Your comments about and suggestions for this investigation: use of raw material.
Environmental performance (EP)
The following topics describe the driving factors behind your EP1: Reduction of exhaust gas, wastewater, solid waste. 1 2 3 4 5
EP2: Decrease in consumption of hazardous/harmful/ 1 2 3 4 5
enterprise's implementation of eco-innovation and its impact on
toxic materials.
the performance. EP3: Decrease in frequency for environmental accidents. 1 2 3 4 5
EP4: Increase in environmental patents. 1 2 3 4 5
Economic performance (ECP)
ECP1: Improved capacity utilization. 1 2 3 4 5
ECP2: Decrease in fee of waste treatment. 1 2 3 4 5
Please indicate to what extent you agree or disagree with the following ECP3: Increase in revenue by selling scrap materials and 1 2 3 4 5
statements (1-strongly disagree to 5-strongly agree) equipment.
Technological capabilities (TC) EPC4: Decrease in loss from environmental accidents. 1 2 3 4 5
TC1: The ecological production technology of your firm is 1 2 3 4 5
very convenient.
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