External and internal economic impacts of eco-innovation and the role of political connections: A sustainability narrative from an emerging market

Eco-innovation is an evolving area of research and might have practical implications for cleaner production. While the identification of eco-innovation's economic consequences has been widely investigated in the extant literature, many questions remain regarding its impact in the context of developing countries. This study investigates the effects of eco-innovation on the cost of equity capital and corporate financial performance as well as the role of political connections as a moderating variable in Indonesia as an emerging market. The samples are all nonfinancial companies listed on the Indonesian Stock Exchange from 2011 to 2016. The data are processed using the panel regression method. This study finds that eco-innovation does not affect the cost of equity capital or company performance. However, political connections do, and they moderate the association between eco-innovation and the cost of equity capital but in a positive direction. This implies that political connections cannot generate investor trust via the eco-innovation efforts of companies.