Abstract

Many analysts argue that environmental regulation is a barrier to innovation in business firms. A competing view holds that environmental regulation contributes to firm level innovation. This article attempts to partially reconcile these two views. The article argues that organizational and individual level variables moderate the effect of environmental regulation generally on the radicalness of innovation at the firm level. It proposes that four moderating variables the degree to which information analysis about environmental issues is centralized, firm size, the intensity and integration of research and development (R&D) units within the firm, and whether regulation is perceived as an opportunity change the sign of the relationship between environmental regulation and the radicalness of firm level innovation. Empirically testable propositions are presented and a regulation innovation profile is suggested. Directions for future research and implications for practicing managers are highlighted.