From commitment to capital: does environmental innovation reduce corporate cash holdings?

Using 7066 firm-year observations of the US-listed firms for the period of 2008-2021, we examine a channel through which eco-innovation affects Corporate Cash holding. More specifically, we modeled the role of goodwill between eco-innovation and Corporate Cash holding. Using a random effect regression model, we show the economically relevant and statistically significant negative impact of eco-innovation on firm-level cash holdings. We provide evidence that goodwill fully mediates the relationship between eco-innovation and cash holdings. Our analyses further document that the impact of eco-innovation on firm-level cash holdings is more pronounced for the firms that operate in environmentally insensitive industries. The influence of eco-innovation on cash holdings is less for low-size firms relative to the high size and more for highly leveraged firms. The results are robust for alternative measures of eco-innovation, selection biases and potential endogeneity. The findings have imperative implications for stakeholders' engagement from a social capital perspective.