Does the Market Value Clean Innovation? Evidence from US Listed Firms

This study brings new insights to the corporate environmental—financial performance debates. We examine the value that capital markets accord to low-carbon (‘clean’) and fossil fuel (‘dirty’) innovation over time in the United States. To address this question, we employ a patent data set sourced from the US Patent office pertaining to 2526 US listed firms for the period 1995–2012. Informed by seminal literature that accords a market evaluation to firmlevel ecoefficiency (e.g., Guenster et al. (2011)) and knowledge stock (e.g., Hirshleifer et al. (2013)), we disaggregate innovation measurements (e.g., Deng et al. (1999) and Gu (2005)) of US firms’ knowledge stock into constituent parts: clean, dirty and other innovation. We, then, elicit their market evaluations over time. We find that the capital market accords a 1.20% higher valuation to the firms producing environment-friendly innovation and decreases the market value of firms producing fossil-based technologies to the tune of 0.45%, on an average. In the specifications including a range of firm-level controls, the negative association between fossil-based innovation and market value becomes statistically insignificant; however, the clean innovation premium remains unchanged.