Regulatory focus of the top management team and firms’ green innovation: the contingency of the firm’s environmental underperformance

Purpose Firm green innovation plays a critical role in advancing sustainable development for both society and individual firms. This study aims to explore how top management team (TMT) cognition, specifically regulatory focus (promotion focus vs prevention focus), influences firms’ green innovation strategies, addressing a gap in research that has mostly emphasized external regulations and internal resources. It also examines how environmental underperformance moderates this cognitive impact, providing deeper insights into the TMT’s role in shaping green innovation efforts for sustainable development. Design/methodology/approach The study tests the hypotheses using the panel data of Chinese listed firms from 2011 to 2019. Textual analysis is used to construct the measure of TMT regulatory focus. Findings This study finds that the regulatory focus of TMT significantly shapes a firm’s green innovation strategies. Specifically, TMT promotion focus positively influences a firm’s green innovation choices, while TMT prevention focus has a negative impact. Additionally, the firm’s environmental underperformance weakens the cognitive effects of TMTs’ regulatory focus on green innovation. Originality/value This study validates and extends the regulatory focus theory by linking TMT regulatory focus to green innovation strategies, revealing TMT cognition as a vital driver of strategic choices in firm’s green innovation. It further shows how environmental underperformance moderates these effects, highlighting boundary conditions under which regulatory focus drives green innovation. The findings enrich theoretical understandings of the cognitive foundations of green innovation.