Does Green Innovation Affect Firm Misvaluation in European Countries? Evidence from Environmentally Sensitive Firms

This study examines the relationship between green innovation and firm misvaluation using panel data from environmentally sensitive firms between 2003 and 2021. Using firm fixed-effects models, we analyze how green innovation relates to deviations of stock prices from fundamental values. The results indicate a positive association between green innovation and firm misvaluation. However, the evidence for undervalued firms is weak and often statistically insignificant, whereas the relationship is more pronounced among overvalued firms. We also examine heterogeneity across firm types. While there is limited evidence of stronger effects among business-to-consumer (B2C) firms, the association between green innovation and misvaluation appears more consistent among business-to-business (B2B) firms. Overall, the findings suggest that green innovation may be associated with pricing deviations from model-implied values in European environmentally sensitive industries.