Environmental Innovation And Financial Decision Making Of United Kingdom Listed Companies. An Empirical Investigation

<p dir="ltr">This thesis focuses on eco-innovation and financial decision strategies by firms in the UK. First, I investigate the association between eco-innovation and tax avoidance, analysing companies with high eco-innovation intensity. Next, I evaluate the connection between ecoinnovation and earnings management. Thereafter, I examine the role of eco-innovation in alleviating financial distress, evaluating its potential as a strategic instrument for enhancing companies’ resilience. The fourth study employs Benford’s Laws accounting concepts to assess the reliability of financial reports.</p><p dir="ltr">My study uses panel data analysis, applying industry and year-level fixed effects within regression models. The dataset includes 567 companies listed on the FTSE All-Share Index, sourced from the Refinitiv EIKON database from 2014 to 2022. The number of observations for each study varies, as detailed in the respective sections. </p><p dir="ltr">I conclude that companies with a high intensity of eco-innovation engage in tax avoidance and earnings management, and environmental policies can positively or negatively influence this relationship. Companies experiencing financial constraints are more likely to engage in tax avoidance and earnings management while pursuing eco-innovation. Several results suggest that eco-innovation protects companies from financial distress.</p><p dir="ltr">Benford’s Laws analysis reveals irregularities in the second digit and first-second digit tests for income taxes (IncT) and payable income taxes (PIncT), as well as in the first-digit test for revenue (Rev). These patterns suggest potential tax avoidance manipulation and dubious earnings management practices among FTSE All-Share companies.</p><p dir="ltr">Several endogeneity tests—including entropy balancing, propensity score matching, Mean Absolute Deviation, and the Heckman selection test—are conducted to mitigate potential biases associated with self-selection and omitted variables. The findings indicate that ecoinnovation plays a multifaceted role in corporate financial decision-making, potentially serving as a strategic tool for financial management, including tax decisions and earnings management, and a mechanism for risk mitigation.</p>