Post-Recall Innovation Strategy as a Decoupling Mechanism
Jeffrey Broekhuijzen
University of Groningen
Supervisor: prof. dr. J. Surroca
Abstract
This quantitative study explores the effect of product recalls on possible decoupling behavior
within the framework of institutional theory and symbolic management literature. Firms can
sustain considerable erosion of legitimacy in the aftermath of a product recall. The idea is
discussed that firms can attempt to relegitimate themselves by engaging in green product
innovation. Using data from a sample of 2619 contemporary global firms, a repeated measures
MANCOVA was conducted to assess the effect of product recalls on strategic decoupling within
green product innovation and the possible moderating effect of financial turmoil. The analysis
uncovered no significant relationship between the independent and the dependent variables.
Post-Recall Innovation Strategy as a Decoupling Mechanism
The topic of the firm and its quest for legitimacy has been of high academic interest ever
since Meyer and Rowan (1977) published their neo-institutionalist perspective. They advanced
the idea that organizational structures evolve as a result of institutional pressures. More
important for this research, however, is the phenomenon that firms often decouple these
structures from each other and from ongoing activities. Corporate hypocrisy, of course, is no
more novel of an idea than hypocrisy on an individual level, but it is a topic that is especially
relevant in today’s world of environmentalism and green innovation. In addition to more
traditional institutions and stakeholders, environmentalists exert unique pressures on firms to
increase the sustainability of their products and processes that often require significant
investments with uncertain monetary payoff.
In dealing with many institutional demands, firms are faced with a choice that pits ethics
against financial interests. Firms employ a wide range of tactics that aim to circumvent the
ethical response while evading the reputational repercussions for doing so. Volkswagen, for
instance, went undetected for years installing defeat devices in many of its diesel models, but
suffered great damage to its image when the practice was exposed. Moreover, researchers
estimated that the excess emissions will lead to 1200 premature deaths in Europe (Barrett et al.,
2017) and 59 in the US (Barrett et al., 2015). The Volkswagen scandal very clearly demonstrates
malice aforethought, but firms’ propensity to manipulate the truth often takes on more subtle
forms. BP makes heavy use of imagery designed to evoke the idea of a company that cares
deeply about sustainability, yet its negligent practices have notoriously played a role in some of
just the environmental sphere as evidenced by the 2008 financial crisis that was largely caused
by banks abusing the regulatory leeway they had been given. Examples of the entire spectrum of
corporate deception and regulatory circumvention are numerous. The common denominator in
many of these cases is that rarely do we see a genuine improvement in response to such an
incident. Banks are still taking as many liberties as ever, but remain constrained for now by
tightened regulations. Because such deception is latent by definition, it is difficult to identify.
The aim of this study is to expand the decoupling literature by examining how companies
conduct themselves post-wrongdoing with regard to the type of innovation efforts they undertake
to prevent further transgressions. Specifically, the aim of this research is to uncover a possible
relationship between product recalls and green product innovation decoupling.
There is little consensus on how to identify, let alone measure decoupling behavior.
Extant literature has focused primarily on firms’ explicit verbal rhetoric and messaging (Lyon &
Montgomery, 2015). The aim of this paper is see whether decoupling tendencies manifest
implicitly in firms’ innovation strategy. The notion of this research is that legitimacy crises incite
firms to engage in relegitimation efforts that have the potential to be decoupled. Some firms will
employ symbolic rather than substantial strategies for the purpose of evoking the perception of
an ethically oriented firm without incurring the related costs. Because perceived legitimacy is the
primary motivator, policies that are visible to the market are vital to the relegitimation strategy.
Thus, it is expected that, following a product incident, firms will emphasize their product
innovation strategies in order to communicate to consumers that new iterations of products are
being developed that do not suffer from the flaws of its predecessors. This is especially important
they are likely to be decoupled. The objective of this research is therefore to find out whether
decoupling tendencies manifest in firms’ innovation strategies following a product recall.
Literature Review Institutional theory
Institutional theory (DiMaggio and Powell, 1983; Meyer and Rowan, 1977; Scott, 1995,
2005) revolves around the role of social stimuli toward conformity in shaping an organization’s
actions. Organizations are assumed to seek approval which makes them susceptible to social
influence. One of the core tenets of the theory is that organizations try to enhance or protect their
external validation or legitimacy (Deephouse, 1999; Scott, 1995) by adopting strategies in
adherence to institutional prescriptions that result from an alignment of societal and corporate
values (Meyer and Rowan, 1977). Legitimacy refers to the degree to which an organization’s
stakeholders – those who exert influence on and are affected by the organization (Freeman,
1984) – endorse and support its actions (Scott, 1995; Schuman, 1995). Legitimacy, in turn,
allows better access to resources, attracts better employees, and improves the exchange
conditions with partners (Aldrich and Fiol, 1994; DiMaggio and Powell, 1983; Oliver, 1991;
Pfeffer and Salancik, 1978; Turban and Greening, 1997), thus ensuring a firm’s long-term
operational continuity and competitiveness (Freeman, 1984; Freeman and McVea, 2001; Hillman
and Keim, 2001). As such, the acquisition of legitimacy is a strategic concern for organizations
(Deephouse, 1999; Scott, 1995).
The notion that a legitimate reputation confers several worthwhile benefits on a firm is a
Organizations that seek recognition and endorsement from a broad set of actors sometimes find
themselves in a vexing predicament. Close adherence to societal norms is akin to a double-edged
sword: even though it is unlikely to drive away outside actors that can provide recognition and
endorsement, those actors might not notice the organization because conformity breeds
isomorphism. Conversely, violating those norms might make the organization more conspicuous,
but few would be eager to support an organization that chooses to defy widely accepted
standards of behavior (Elsbach & Sutton, 1992). Pfeffer and Salancik (1978) suggested that an
organization does not necessarily need to be endorsed and supported by society at large, but that
support by a few key segments is sufficient for it to remain legitimate in the face of external
attacks. Still, the difficulty lies in the fact that perceptions of internal participants and powerful
outsiders about what constitutes legitimate ends and means are often vague, conflicting and in
flux (Meyer & Rowan, 1977). If the organization is unable to strike a balance within these
expectations, dissatisfied key actors may retract endorsement of organizational endeavours. This
can also lead to such actors scaling down their involvement with the organization or demanding
more resources for their continued allegiance (Pfeffer & Salancik, 1978). Thus, the dynamics of
legitimacy acquisition and maintenance are a headache for most organizations, regardless of the
level of support and recognition they enjoy currently or have enjoyed previously.
Recalls and the consequences for legitimacy
Legitimacy is not a static concept. It is governed by social processes and therefore subject
to contestation and disruption over time. Because legitimation happens mostly implicitly,
Disruptions demonstrate that our perception of the reality we take for granted on a daily basis is
fragile and requires continuous reinforcement if the status quo is to persist (Chiles, 2016).
The safety of consumer products is one of those taken-for-granted issues. Consumers
draw inferences about product safety based on cognitive legitimacy, so it is in firms’ best interest
to avoid disruptions that could awaken scrutiny (Suchman, 1995) and disturb taken-for-granted
orientations towards their products. Moreover, disruptions could reveal what those hidden
orientations are in the first place (Chiles, 2016).
Product recalls are disruptive events in organizations that have the potential to trigger
legitimacy crises (Shrivastava, Mitroff, Miller, & Miglani, 1988). Products are recalled because
they violate a standard of quality and possibly form a hazard to consumers or the environment.
This calls into question the firm’s position as an exchange partner and provider of economic
benefit, and challenges previously held perceptions of the firm’s trustworthiness, honesty and
reliability. Ultimately, product incidents may threaten the legitimacy of the firm, casting doubt on
its organizational predictability and capacity to deliver goods that meet expectations of quality
(Breitsohl, 2009). This is often reflected in reduced share prices and loss of reputation and
market share (Bates et al., 2007). Internally, strategic ramifications may include impairing
capability building, organizational learning and resource allocation. Therefore, taking preemptive
action towards avoiding the occurrence of recalls should be of vital importance to firms (Yadong,
2008).
If such an event does transpire, it does so in phases according to Suchman (1995). The
form of impression management tactics. This serves to establish a normalizing account that
prevents audiences from making negative extrapolations about the organization as a whole.
Managers may attempt to exonerate the organization from moral responsibility by denying,
excusing, justifying or explaining the problem. However, Ashforth and Gibbs (1990) asserted
that managers often aggravate the situation by doing so. The aftermath of an incident often
involves considerable uncertainty, prompting constituents to be extra sensitive to the information
presented being to them. Clumsy trivializations by management could in this case amplify any
negative effects on legitimacy.
It is important to consider the type of challenge in designing an appropriate relegitimation
strategy. Hirsch and Andrews (1986) describe a distinction between performance and value
challenges. Performance is challenged when a firm does not meet its goals (e.g., in delivering the
quality that its constituents expect). A recall represents a worst-case scenario of this type of
challenge. A value challenge is existential in nature and happens when the validity of the firm’s
core mission is questioned, rather than manner in which it is executed. Examples of operations
where such challenges are common include abortion clinics, tobacco manufacturers and nuclear
power plants. Performance challenges are typically easier to counter because the organizational
mindscape is built on rational cognitive maps derived from objective and technical data that is
subject to empirical testing (Shrivastava, 1987). Because of this emphasis on objectivity and
quantification, managers are better able to rationalize organizational performance than provide
moral justification for the values underneath. Short-term tactics frequently used to counter
or concealment, and in the long term, coercive isomorphism, altering resource dependencies, and
ceremonial conformity” (Ashforth & Gibbs, 1990, p. 184).
Another popular method of repairing organizational legitimacy with key stakeholders is
to engage in CSR practices (Jiang & Bansal, 2003; Suchman, 1995; Weaver, Trevino, &
Cochran, 1999), especially among companies with high public visibility such as those that
produce brand-name consumer products. Much of the literature in this field has focused on
multinationals utilizing CSR programs as a means of diverting attention away from or undoing
damage caused by the negative externalities of their operations (Scruggs & van Buren, 2016). It
stands to reason that recalls could inspire firms to apply that same strategy when we consider
they present a similar threat to legitimacy.
Green Product Innovation as a Relegitimation Strategy
Because social compliance, rather than financial considerations, is the primary motivator
of firm action propounded in institutional theory, efficiency issues or the impact of strategic
choices on firm performance are of lesser relevance. This has made the theory particularly
popular in the sphere of environmental management research, since “green” innovations often
cannot be financially justified, at least in the short term (Bansal, 2005; Bansal and Clelland,
2004; Hoffman, 1999, 2000). The fact that environmental management has normatively
institutionalized in several industries despite any apparent financial returns illustrates the
relevance of legitimacy pressures (Berrone, Fosfuri, Gelabert, &, Gomez-Mejia, 2013).
In a broad sense, environmental innovations can be defined as “the measures of relevant
products, and processes that contribute to a reduction of environmental burdens or to achieving
ecologically specified sustainability targets” (Amores-Salvadó, Castro, & Navas-López, 2014),
however, most definitions simply refer to products, processes, or management practices aimed at
the reduction of environmental impacts (Kemp and Arundel, 1998; Rennings and Zwick, 2002;
Kemp and Pearson, 2008). It is the role of green product innovation specifically that will be
examined as a possible relief instrument for firms to appeal to when suffering a post-recall
legitimacy crisis. That proposition contrasts the perspective of Bunduchi (2017) who described
the product not as a purveyor of legitimacy, but as a recipient.
After formulating normalizing accounts in the first phase of a legitimacy crisis, the next
step towards relegitimation is strategic restructuring, according to Suchman (1995). The focus of
this study lies on the restructuring of firms’ innovation strategies to signal disassociation from
the incident (Suchman, 1995) and generate favorable expectations of future products (Rindova,
Petkova, & Kotha, 2007).
Kishida, Schulze & Deeds (2005) found that the value of product innovation is to some
extent contingent upon the institutional context. High institutional pressures significantly
increase the role product innovation plays in achieving firm growth and profitability while it has
less relevance in low pressure environments. Although the magnitude may differ depending on
the context, institutional pressures invariably rise in the wake of a product recall. Thus, ceteris
paribus, firms should have more incentive to engage in product innovation in order to regain lost
Along with a loss of legitimacy, a firm is likely to suffer reputational damage after a
product incident diminishes consumer trust in the quality of their products. Reputation is a
concept closely related to legitimacy within institutional theory (Deephouse & Carter, 2005).
Rindova, Williamson, Petkova, & Sever (2005) proposed a division of the concept of reputation
along two dimensions: Perceived quality and Prominence. Perceived quality represents the
degree to which stakeholders evaluate an organization positively on a specific attribute, such as
ability to produce quality products. Prominence represents the degree to which an organization
receives large-scale collective recognition in its organizational field. It is determined by support
and endorsement from institutional intermediaries and affiliation with high-status actors and thus
captures the overlap between reputation and legitimacy. The authors also showed that perceived
quality directly influences prominence. The implication for this research is that a loss of
perceived quality due to a product incident is likely to negatively impact a firm’s legitimacy as
well as its reputation. Furthermore, the relationship between reputation and legitimacy is
bidirectional according to some authors (Czinkota, Kaufmann, & Basile 2014; King & Whetten,
2008).
Product innovation can benefit corporate reputation both indirectly, via its positive effect
on product quality (Shi, Wang, Sun, & He, 2018), and directly (Rindova, Petkova, & Kotha,
2007). A corporate reputation for product innovation (RPI) is defined as “a constituent-specific
perception of a firm’s track record of product innovations, degree of creativity, and potential for
continued innovative activity in the future” (Henard & Dacin, 2012, pp. 321-322). Among other
things, a reputation can create a corporate identity, influence constituents, signal a strategic
1990; Schatzel, Calantone, and Droge, 2001). A positive RPI generates greater levels of
excitement towards the firm and general customer satisfaction via increased consumer
involvement. In turn, consumers are motivated to seek out other product offerings by the firm
and anticipate satisfaction from new products even before being exposed to them. Additionally, a
positive RPI can enhance general firm image, create better market positioning opportunities and
increase customer loyalty.
One finding by Henard and Dacin (2012) is of particular relevance to this study. They
found that product innovation creates a tolerance for product failure. Their findings built on
research by Woodruff, Cadotte, and Jenkins (1982) who proposed an experience-based model
where product performance expectations are forged over a prolonged period of exposure to a
class of products or brands. This process occurs similarly to the development of RPI. According
to the experience-based model, individuals’ overall experiences with a brand becomes their base
of comparison for product performance assessment, resulting in “zones of
indifference” (Woodruff, Cadotte, and Jenkins, 1983). These zones represent a range of
performance wherein consumer assessments are relatively positive. Highly involved consumers
have a wider zone of indifference as a result of their positive predisposition towards the firm. In
summary, a strong RPI induces consumer involvement which, in turn, buffers tolerance for
product failure in the form of a wider zone of indifference than would exist for a firm with a
weak RPI. However, it should be noted that these are long-term measures. Firms intent on
restoring their reputation and legitimacy after a product incident may find product innovation to
There is indication that integrating elements of environmental sustainability into the
innovation process could compound these positive effects. Cuerva, Triguero-Cano, and Córcoles
(2014) found a strong association between firms’ propensity to implement a standardized quality
management system and their disposition towards adopting green innovation. The same
association was shown to exist in the minds of consumers, who tend to view environmental,
health and safety issues holistically as a single property of the product (Leire & Thidell, 2005).
Accordingly, green product innovation seems ideally positioned to abate concerns about these
issues stemming from a recall.
The prominence of environmental sustainability in recent years has prompted increased
academic interest in understanding the business case behind it. Globally, firms are starting to
recognize environmental issues and have started adapting their business practices in response
(Pujari, 2006). Environmental sustainability has traditionally been regarded as a zero-sum game
where firms are forced to relinquish certain corporate goals in favor of compliance with
environmental pressures, but the general consensus today is that sustainability can augment
competitiveness as well (Porter & van der Linde, 1995). Moreover, institutional and economic
drivers of green innovation often coexist within the same company (Dangelico and Pujari, 2010;
Moyano-Fuentes, Maqueira-Marín, & Bruque-Camara, 2018). In fact, according to
Amores-Salvadó, Castro and Navas-López (2014), green corporate image positively affects firm
performance in general. More importantly, they found it moderates the relationship between
environmental product innovation and firm performance. This result runs parallel to the finding
by Truong and Berrone (2015) that environmental legitimacy fully mediates the relationship
connected to sustainability. As a result, any environmental efforts undertaken by a firm must be
accompanied by extensive communication towards stakeholders to ensure the fulfilment of
business expectations. Indeed, green image management is an inseparable component of the
green innovation process (Walker & Wan, 2012). This fact has made environmental management
particularly susceptible to decoupling, or greenwashing, as it is known in the literature (Lyon &
Montgomery, 2015; Marquis, Toffel, & Zhou, 2016). One of the objectives of this study is to find
out whether the environmental context has unique implications for firms’ innovation strategies as
well.
Decoupling
A key aspect of institutional theory, “decoupling” refers to the diversion tactics some
organizations employ to obscure controversial core activities that may offend certain
constituencies so as to maintain legitimacy in the face of conflicting demands. Institutional
theory suggests that “the appearance rather than the fact of conformity is often presumed to be
sufficient for the attainment of legitimacy” (Oliver, 1991). According to this perspective,
symbolic actions represent an ideal solution to a situation in which an organization has to
manage external pressure to conform to stakeholder norms and internal pressure to remain
flexible. Meyer and Rowan (1977) advanced the proposition that by adopting visible structures
that conform to social norms and decoupling those structures from core activities that do not,
organizations can reap the benefits of enhanced legitimacy even though such practices may
conflict with the desires of the powerful actors by whom that legitimacy is conferred.
controversial activities, they can often remain rational and legitimate in the eyes of outsiders
even when those activities do not align with organizational goals or social norms (Scott, 1987).
This makes symbolic management very attractive to firms and their managers and is
often preferred over substantive action (Suchman, 1995). The abundance of research on the
matter shows that symbolic tactics have permeated into many different types of management and
have become an important strategy for obtaining legitimacy. For instance, there is evidence of
decoupling of governance structure demands by shareholders and long-term incentive plans for
executives (Westphal & Zajac, 1994, 1995). The subject has also been put into context of stock
repurchase (Westphal & Zajac, 2001), ethics codes (Stevens, Steensma, Harrison, & Cochran,
2005), entrepreneurial resource acquisition (Zott & Huy, 2007), corporate social performance
(David, Bloom, & Hillman, 2007; Weaver, Treviño, & Cochran, 1999) and corporate ratings
(Clark & Newell, 2013).
Institutional theory primarily addresses how firms deal with the often conflicting social
expectations coming from a variety of stakeholders, often explicitly, but also through the use of
visible and institutionalized structures and practices that divert the spotlight from questionable
activities. However, organizations often take a proactive role in shaping their image by, for
instance, framing controversial activities in a positive light (Pfeffer & Salancik, 1978).
Influencing perceptions of the organization by portraying activities and structures in a
way to attract endorsement and support (i.e., legitimacy) is known in the literature as impression
management (Schlenker, 1980). Although originally a theory of the individual, it has been used
their legitimacy (Ashforth and Gibbs, 1990; Elsbach, 1994; Elsbach and Sutton, 1992). The
intersection of institutional theory and impression management represents a solid anchoring
point for this study where I investigate the role of product innovation as an impression
management tactic to signal reliability improvement efforts after an incident.
In the context of green innovation, firms can signal environmental conscientiousness by
adopting symbolic actions that obfuscate poor actual environmental performance. This allows
firms to gain environmental legitimacy because easy-to-observe environmentally responsible
measures, like the introduction of sustainable products, create the impression that the firm’s
concern for the environment is reflected in its internal processes as well (Berrone, Gelabert, &
Fosfuri, 2009).
There is certainly reason to believe the case for decoupling green innovations is there.
For one, legitimacy pressure is positively correlated with both green product innovation and
green process innovation, especially when firms experience a deficiency gap between their
environmental performance and the industry standard (Berrone, Fosfuri, Gelabert, &
Gomez-Mejia, 2013), something that might occur after an environmental hazard is identified in a
product.
Bromley and Powell (2012) distinguish between policy-practice and means-ends
decoupling. The first type entails adoption of policies for ceremonial purposes only. Such
policies may be implemented and monitored so weakly that they do little to alter daily work
routines. Policy-practice decoupling allows firms to circumvent the difficulty of appeasing all
sudden upsurge in institutional pressure. In this case, the firm could consider engaging in green
product innovation but may not possess the necessary capacity to do so within short notice. This
is one of many conceivable scenarios in which a recall may incite policy-practice decoupling.
Thus, I posit:
H1: Recalls lead to an increase in policy-practice decoupling
A divergence between policy and practice has become virtually synonymous with
decoupling, but Bromley and Powell (2012) argue that this form of decoupling is becoming less
prevalent in an increasingly managerial world wherein evaluation, standardization, and
benchmarking have become commonplace. The authors have instead observed a shift towards
means-ends decoupling, the phenomenon of policies being implemented in the absence of
evidence that indicates they are linked to organizational effectiveness or outcomes. Causal links
between activities and outcomes that are rhetorically posited to be self-evident, are in fact
non-existent. Their reality is only perpetuated through perceived larger structural pressures. Whereas
policy-practice decoupling represents symbolic adoption, means-ends decoupling can be
characterized as symbolic implementation. Means-ends decoupling often occurs when
organizations adopt new ends that are not directly related to core goals, as is the case for firms
engaging in green product innovation in response to a post-recall legitimacy crisis. In this case, a
nonlinear relationship is expected between green product innovation efforts and outcomes. Thus,
I posit:
These relationships may be complicated by the double externality problem that plagues
environmental innovations. Common to all innovations are positive externalities in the form of
knowledge spillovers during the R&D phase of an innovation. For green innovations, additional
externalities occur in the adoption and diffusion phase because of the reduced environmental
impact. This creates a situation where the private return on investment for green innovation is
less than its social return unless environmental impact is reflected in prices. Thus, a disincentive
exists to invest in green innovation as long as environmentally harmful alternatives are allowed
to compete without penalty. Policy instruments are often required to correct this market failure
and stimulate green innovation (Rennings, 2000). Uncertainty about being able to fully
appropriate the investment is particularly unwelcome at firms experiencing financial difficulties
(Li et al., 2017) and could invite decoupling behavior. Furthermore, translating (costly) CSR
policies into practice is much easier for firms that possess the resources to do so. Slack resource
theory holds that better economic performance releases slack resources that can be designated to
fulfil a CSR strategy such as green product innovation (Waddock & Graves, 1997). Firms
suffering financial difficulties may be constrained by their resources in their ability to uphold
formal policies and stated commitments, even though stakeholders may pressure them to do so.
Thus, I posit:
H3: Financial turmoil positively moderates the relationship between recalls and
Methods Data Collection
The initial sample was retrieved from the ASSET4 database within Thomson Reuters
Datastream of all global firms for which it contained data over the years 2014-2016. ASSET4
contains the metrics on green innovation relevant for this study. The time period was selected in
order to ensure data was as current as possible while also accounting for the fact that more recent
company information might not have been added to the database yet. The resulting sample still
had an abundance of missing values for one or more variables. All entries with missing values
were omitted from the sample before the remainder was transferred into Bureau van Dijk’s Orbis
database so patent data could be associated. Because Orbis does not currently offer a way of
searching for green patents according to company name, only those companies that could be
associated with a “BvD ID” (Burea van Dijk’s proprietary company identification system) were
included in the search strategy. Orbis currently offers only a rudimentary method of obtaining
patent counts with no option to filter by patent type or to specify a time period. Its primary
function is to produce unaggregated lists of patents, so obtaining counts for each company
required a workaround. The Orbis search engine limits single queries to 1,000 companies, so the
sample was entered in batches for each year separately. Only those patents were included that
were classified according to the Cooperative Patent Classification (CPC) as being “Technologies
or Applications for Mitigation or Adaptation Against Climate Change”. The output was exported
to Excel and aggregated by cross-referencing the BvD ID numbers in the sample with the patent
information via the COUNTIF function. The final sample consisted of 2619 companies across 46
Measures
Dependent variables. The ASSET4 database contains variables that can capture the
concept of policy-practice decoupling in accordance with Bromley and Powell (2012). The
policy component could simply be represented by the binary variable of that answers the
question the following question: “Does the company have an environmental product innovation
policy (eco-design, life cycle assessment, dematerialization)?” Other variables in the green
product innovation category are called Implementation, Monitoring, and Improvements. The
latter is absent in Bromley and Powell’s (2012) paper, but implementation and monitoring are
terms explicitly mentioned as practices that can be decoupled. However, as their values are
derived from the same datapoint it made no sense to include them as separate measures. Instead,
they were adopted as a single binary variable representing practice. Its value is based on the
answer to the following question: “Does the company describe, claim to have or mention the
processes it uses to accomplish environmental product innovation?”
Patents were used to assess the existence of means-ends decoupling. Since this type of
decoupling entails that green product innovation measures do get implemented but do not lead to
significant outcomes, it is expected that green patents are filed as a symbolic measure, but get
rejected at the patent office for lack of quality. Assessment of technological quality is intrinsic to
the granting process (Guellec & de la Potterie, 2000). Thus, a comparison is drawn between
green patents published and green patents granted in order to indicate decoupling. Dang &
demonstrating that Chinese patent subsidy programs increase patent counts but have a negative
effect on quality and grant rates.
Independent variable. Since the main purpose of this research is to investigate the effect
of recalls on decoupling behavior, a dummy variable was coded to indicate whether a firm has
issued a recall in 2014.
Moderating variable. To account for the hypothesized effect of financial turmoil on the
relationship between recalls and decoupling, Altman-Z scores were computed for each firm. This
score is widely used as an indicator for impending corporate bankruptcy and is derived using the
following equation: Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5, where X1 = working capital/
total assets, X2 = retained earnings/total assets, X3 = earnings before interest and tax/total assets,
X4 = market value of equity/total liabilities, X5 = sales/total assets, and Z = overall index
(Altman, 1968). Even though the equation was formulated in 1968, it is still robust today
(Salimi, 2015).
Control variables. There is widespread consensus in the literature that the institutional
context in which a firm operates can influence its CSR activities (Graafland & Smid, 2016), and
it has become the norm to control for these effects when conducting studies with multinational
samples (Del Mar Miras Rodríguez & Escobar Pérez, 2016). For instance, regulatory context has
been shown to affect greenwashing, a form of policy-practice decoupling. Decoupling is easier in
countries where CSR regulations are weak (Delmas & Burbano, 2011). Furthermore, regional
differences are known to exist in patent counts (Tebaldi & Elmslie, 2013) and grant rates; some
important to ensure that patent count and grant rate differences in the model are not affected by
institutional differences of filing locations. Witt et. al (2018) recently published a framework in
extension of the Varieties of Capitalism literature that served as the basis of the institutional
context variable in this study. Firms’ ISO codes were used to assign them to one of following
respective categories: Highly Coordinated, Coordinated Market, Liberal Market, European
Peripheral, Advanced Emerging, Advanced City, Arab Oil-Based, Emerging, and Socialist
Economies.
Secondly, the nature of the production processes or products determines the type of social
and environmental externalities that a company creates (Brown et al., 2010). Moreover, the
incentive the decouple policy from practice may differ across industries because of varying
market pressures (Brammer & Pavelin, 2006). Industry differences were captured in the sample
by categorizing firms according to their SIC division.
Lastly, access to financial resources and knowledge of how to implement certain policies
differs depending on the size of the firm. Small firms are more likely to have informal structures
and less experience with implementing CSR measures that could lead to decoupling (Lepoutre &
Heene, 2006). Firm size can be measured according to a variety of methods, but different proxies
capture different aspects of the concept that are relevant within different contexts. Dang, Li, &
Yang (2018) recommend referring to total sales when controlling for size in the product market,
as is the case in this study. To account for possible temporal differences, net revenue was
Analysis. Because product development cycle times in most industries (Griffin, 1997)
stretch years rather than months, the choice was made to conduct a longitudinal study in order to
assess causal links between recalls and trend deviations in types of green product innovation
decoupling. The method of analysis was dictated by the nature of the variables. Both the
independent and dependent variables of hypothesis are categorical, so the choice was made to
conduct a logistic regression analysis. The second hypothesis contains a categorical predictor
with two correlated continuous dependent variables. Because hypothesis 3 requires that an
interaction term be added as a covariate as well, the choice was made to conduct a repeated
measures MANCOVA. Because this is a within-subjects design, it effectively controls for fixed
factor effects experimentally, so they can be omitted from the model with the exception of the
predictor (Thomas et al., 2009).
Results
A curious fact emerged during the analyses that unfortunately prevented further testing of
hypothesis one. Values for the variables Policy and Practice turned out to be completely static
over the years studied. I.e., not a single company had seemingly adopted or relinquished a green
product innovation policy, nor made changes to their implementation. Even when data on these
variables over a greater range of time was gathered from Datastream, the observations remained
the same. It would have been disingenuous to proceed with the regression analysis as the results
would clearly not be usable to derive a valid predictive effect.
Instead, the general linear model was prepared for testing hypotheses two and three.
MANCOVA, a dummy variable was created of firms possessing one or more patents, as this was
not the case for the vast majority firms in the dataset. A normality check indicated the presence
of significant outliers and a positive skew of both dependent variables and the covariate of firm
age. Outliers due to error were removed from the dataset, such as one firm that purportedly had
an Altman-Z score of -16,539. Positively skewed variables were logarithmically transformed in
order to ensure that their distribution curves conformed to the assumption of normality. Box’s M
test was used to assess equality of covariance matrices. Since this test is notoriously sensitive, a
Box’s M value of 44.39 was interpreted to be non-significant at a p value of .005 (Tabachnick &
Fidell, 2001). Thus, covariance matrices between groups were assumed to be equal. The results
of Levene’s test of equality of error variances showed no significant values on any of the
variables (lowest p = .29), so there were no issues with heteroscedasticity. Finally, Mauchly’s test
indicated that the assumption of sphericity had been violated for both dependent variables: χ2(2)
= 59.03, p < 0.001 (patents published), χ2(2) = 27.34, p < 0.001 (patents granted), therefore
Univariate Tests
Source Measure
Type III Sum
of Squares df Mean Square F Sig.
Partial Eta Squared Noncent. Parameter Observed Power Time green patents published Sphericity Assumed Greenhouse -Geisser Huynh-Feldt Lower-bound green patents granted Sphericity Assumed Greenhouse -Geisser Huynh-Feldt Lower-bound Time *
recall green patents published Sphericity Assumed Greenhouse -Geisser Huynh-Feldt Lower-bound green patents granted Sphericity Assumed Greenhouse -Geisser Huynh-Feldt Lower-bound Time * recall * Altman-Z score green patents published Sphericity Assumed Greenhouse -Geisser Huynh-Feldt Lower-bound green patents granted Sphericity Assumed Greenhouse -Geisser Huynh-Feldt Lower-bound Time * firm
degrees of freedom were corrected using Greenhouse-Geisser estimates of sphericity (ε = .84 and
ε = .91, respectively).
Univariate analysis of within subjects-effects (table 2) revealed that recalls did not
interact with time to predict significant changes in green patents published (F(1.68, 476.08) = .
09, p = .88, partial η2 = .00) and green patents granted (F(1.83, 518.13) = .13, p = .86, partial η2
= .00). Similarly, the interaction term recall*Altman-Z score produced non-significant results on
changes in green patents published (F(3.37, 476.08) = .1.61, p = .18, partial η2 = .01) and green
patents granted (F(3.66, 518.13) = .66, p = .61, partial η2 = .01). Thus, hypotheses two and three
are rejected.
The between-subjects effects (table 3) show whether differences between factors are
associated with differences in the dependent variables. Results show a highly significant
difference on green patents published (F(1, 283) = 19.66, p < 0.001, partial η2 = .07) and green
patents granted (F(1, 283) = 22.73, p < 0.001, partial η2 = .07) between firms that have
experienced a recall in 2014 and those that have not, in addition to significant differences
Univariate Tests
Source Measure
Type III Sum
of Squares df Mean Square F Sig.
predicted by the interaction term and the covariate. It should be noted that these results are not
indicative of a causal effect between recalls and the dependent variables, but of a structural
composition difference between the firms that had to recall a product and those that did not.
These differences are shown in figures 1 and 2.
Tests of Between-Subjects Effects
Transformed Variable: Average Transformed Variable: Average Transformed Variable: Average Source Measure
Average Type III Sum
of Squares df Mean Square F Sig. Partial Eta Squared ParameterNoncent. Observed Power Intercept green patents published green patents granted Recall green patents published green patents granted Recall * Altman-Z score green patents published green patents granted Firm size green
patents published green patents granted Error green patents published green patents granted .663 1 .663 .504 .478 .002 .504 .109 2.318 1 2.318 2.049 .153 .007 2.049 .297 25.833 1 25.833 19.659 .000 .065 19.659 .993 25.722 1 25.722 22.729 .000 .074 22.729 .997 13.995 2 6.997 5.325 .005 .036 10.650 .836 14.379 2 7.189 6.353 .002 .043 12.706 .898 38.853 1 38.853 29.568 .000 .095 29.568 1.000 35.900 1 35.900 31.723 .000 .101 31.723 1.000 371.876 283 1.314 320.264 283 1.132 Transformed Variable: Average
Transformed Variable: Average
Page 1
Discussion and conclusion
The relationship between recalls and policy-practice decoupling remains inconclusive for
now. The fact that variables on green product innovation policy and implementation tells us
either of two things depending on whether the data is reliable. If the data is unreliable, no further
conclusions need to be drawn. If it is reliable, however, the argument can be made that these
values represent certain structural elements exist in the coupling and decoupling of firms’ green
product innovation policies that persist over time. The emphasis here, though, should be on the
word “elements”. It is likely that these values do not capture the full scope of the green product
innovation strategies of the firms surveyed. Unfortunately, access limitations prevented
cross-validation with other databases.
Hypothesis testing on means-ends decoupling produced unexpected results. The results
show that recalls do not significantly affect green product innovation means-ends decoupling
when measured over a three year period, nor is that relationship affected by financial turmoil.
Time
2 0 1 6 2 0 1 5
2 0 1 4
Estimated Marginal Means
1.90 1.80 1.70 1.60 1.50 1.40
Estimated Marginal Means of Green Patents Published
Y N Product Recall 2 0 1 4 Page 1 Figure 1 Time 2 0 1 6 2 0 1 5 2 0 1 4
Estimated Marginal Means
1.50 1.40 1.30 1.20 1.10 1.00
Estimated Marginal Means of Green Patents Granted
However, the limitations of this study carry over to the generalizability of the results. Firstly, I
will address the issue of construct validity. The patents used in this study cover green innovations
in a general sense, while the hypotheses cover green product innovations specifically because of
their inherent market visibility. The patent classification systems (IPC and CPC) are designed
according to intuitive use categories rather than abstractions used in research. Making the
distinction between product and non-product patents would have required venturing into the
bowels of the hierarchies, selecting appropriate junctions based only on personal judgment. Even
then, such arbitrariness would introduce a new host of validity concerns. Another possible reason
why a significant result was not produced could be related to the sample. Of the original 2619
firms, only 288 had one or more green patents. Of those 288, only 34 had issued a recall in 2014.
It is possible that a decoupling effect will only manifest in very specific circumstances that are
unlikely to exist in such a small sample size.
Assuming no type II error was made, as possible explanation is that the post-recall
legitimacy threat that could inspire decoupling is accompanied by increased scrutiny, making
decoupling riskier. In other words, risk and reward rise parallel to each other. Similarly, it is
possible that market visibility of product innovation simultaneously stimulates decoupling and
discourages it. From this perspective it is not difficult to grasp why the majority of the
greenwashing literature has focused on decoupling visible policies from less visible practices
such production processes that cause excessive emissions, as these involve situations in which a
more favorable risk to reward ratio exists. Finally, the difference between the within-subjects
effects and between-subjects effects underscores relevance of a repeated measures design. The
green patents among firms that issued a recall in 2014, even though the most likely culprit for
such an effect, firm size, was included as a covariate in the model. No causal inferences can be
drawn from these results because they were not hypothesized a priori, nor were they properly
controlled for. However, they do warrant further investigation into the characteristics of the firms
that issued a recall.
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