Can Green Innovation Bring Stock Excess Returns?

With the transformation and development of China’s economy,China’s economy has changed from emphasizing performance rather than environment to paying equal attention to environment and performance.In recent years,China has issued a large number of policies,putting green and innovation in an important position to encourage companies to develop green innovation.However,at present,the main force of green patent application in China is still colleges and universities.In contrast,companies lack green innovation,and the supply of green innovation at the company level is insufficient.Although the number of green patents of the company has shown an upward trend in recent years,more and more companies have begun to carry out the research of green innovation,and have achieved certain results and obtained green patents.However,because green innovation has dual externalities and belongs to half a public goods,it has a positive knowledge spillover effect,and some of the value created will be enjoyed by the society free of charge,so that the company can not fully recover the investment in green innovation,which may increase the operation cost of the company and reduce the profitability of the company.Therefore,the company may not take the initiative to carry out green innovation,This leads to the shortage of natural supply of green innovation at the company level.However,if the market can give a positive feedback to green innovation,so that green innovation can bring excess returns to the company and make up for the losses caused by the increase of the company’s operating costs,it can stimulate the company to carry out green innovation independently.Therefore,this paper explores whether the capital market can give positive feedback to green innovation,whether green innovation can bring stock excess return,and studies the action mechanism of green innovation on stock excess return.The research on the relationship between green innovation and capital market is still in a relatively blank state.Most of the existing studies start from a single "green" or "innovation" perspective.There are differences between "green innovation" and "green innovation".Aiming at the research problems,through combing the existing literature,this paper believes that green innovation can bring the excess return of stock,and puts forward two hypotheses of action mechanism:green innovation affects the excess return of stock by affecting the company’s operating performance;Green innovation affects the excess return of stocks through investors’ attention and media reports.In order to verify the proposed hypothesis,based on the data from 2011 to 2020 in Shanghai A-share market and gem market,this paper uses the six factor model with the green innovation factor based on the number of green invention patents added to the Fama-French five factor model to verify.For the hypothesis of the mechanism of green innovation on stock excess return,this paper constructs a panel regression model and tests the intermediary effect.Finally,for the A-share market and gem,the GRS test result of the model with green innovation factor is better than the ordinary Fama-French five factor model.In the grouping regression results,the green innovation factor is basically positive and significant.That is,green innovation factors can well explain the excess return of stocks,and green innovation can bring the excess return of stocks.The empirical results of mechanism research show that in the A-share market,green innovation can affect the excess return of stocks by acting on the company’s operating performance and media reports,but the operating performance plays a masking effect,that is,green innovation will damage the company’s operating performance and reduce its positive impact on the excess return of stocks,Media reports play an intermediary effect.In the GEM market,green innovation can improve the excess return of stocks by improving the company’s operating performance,and the pessimistic view of the media on it will weaken its positive impact on the excess return of stocks.