Do Firms Benefit More from Eco-Innovation than ESG Disclosure?

Abstract

Research Originality: This study offers novelty by distinguishing the financial effects of substantive environmental actions (eco-innovation) from symbolic sustainability reporting (ESG disclosure) and examining the moderating role of firm size. Research Objectives: This study investigates the direct effects of eco-innovation and ESG disclosure on firm performance and examines whether firm size moderates these relationships. Research Method: The study used data on 236 high environmental-risk firms from 2018 to 2025, yielding 1,158 observations. We employed the High-Dimensional Fixed Effects (HDFE) estimator with industry and year fixed effects and firm-level clustered standard errors. Empirical Results: Eco-innovation significantly enhances firm performance, whereas ESG disclosure exhibits no significant effect. Furthermore, firm size negatively moderates the relationship between eco-innovation and firm performance. Implications: These findings imply that firms should prioritize eco-innovation over ESG disclosure alone, while policymakers should provide stronger financial incentives to support their sustainability transition, especially for smaller firms. JEL Classification: Q55, Q56, M14, L25