How does the financial market influence firms' Green innovation? The role of equity analysts

This paper investigates how equity analysts influence firms' green innovation across different financial markets. Using a unique data set consisting of more than 6000 listed firms across 56 different countries, we find that corporate green innovation is positively associated with the number of equity analysts following the firm. We attribute this result to the informational role of analysts, which encourages managers to invest more in eco-innovation. However, when we divide the full sample into two subsamples based on whether covered firms are incorporated in market-oriented or bank-oriented countries, we find that the association between firm's green innovation and analyst coverage becomes negative in the case of market-oriented financial systems. We argue that potential explanations for this result rely on the differences occurring among market-oriented and bank-oriented systems in terms of listed companies' ownership structure and the prevalence of arm's length transaction banking rather than long-term lender-borrower relationships.