Drawing from resource dependence theory and upper echelons theory, we propose that greater shareholder activism is associated with increased environmental innovation because shareholder proposals work as a private governance mechanism to induce management to prioritize environmental issues and work with environmental organizations as predicted by resource dependence theory, all of which are augmented for firms with liberal TMTs. We tested the hypotheses with the S&P 1500 firms and found supporting evidence. The results suggest that establishing environmental partnerships is a key mechanism through which shareholder activism promotes environmental innovation; these positive effects are more pronounced for firms with liberal TMTs.
