Corporate sustainability and financial performance: A hybrid literature review

Abstract

The discussion of “whether it pays to be green” is ongoing. This review does not intend to solve the debate, rather it soothes it by contributing to the concept of “when it pays to be green.” By focusing on the shortcomings of existing literature reviews on the topic of corporate sustainability and financial performance (CSFP) in this hybrid review, issues were identified that had been overlooked earlier. In general, CSFP holds a positive relationship but in a time lag. Nonconclusive results about the relationship within CSFP are due to self‐selection bias, endogeneity issues, and the use of multiple datasets and industry categories. Surprisingly, we also discovered that the impact of sustainability on financial performance is elusive in capitalist countries considered to be economically rational. Institutional and legitimacy requirements are a good starting point for shaping corporate behaviors in the short term; however, they might not be equally appropriate in the long term in cases when corporations shift operations to pollution havens. A multifaceted, synergistic interaction between governmental institutions, corporations, and other stakeholders is required—without imposing authority—to ensure durable sustainable development.

Reinventing the wheel? Factors influencing relationship: links between sustainability and financial performance. European evidence

“…They either proved or rejected their hypotheses by employing inconsistent measurements (Lu and Taylor, 2016). Literature reviews and metaanalyses on this topic also admitted nonconclusive results due to a lack of research design and measurement options (Grewatsch and Kleindienst, 2017;Lu and Taylor, 2016;Rahi et al, 2023). This nonconclusive outcome occurred mainly for two reasons.…”

“…A recent article by AlAjmi et al (2023) investigated moderating role of IQ on the relationship between corporate social responsibility disclosure (CSRD) and banks’ operational, financial and market performance, which has a completely different focus than this article. Another article by Rahi et al (2022b) articulated the nexus between IQ and corporate sustainable performance and thereby ignored FP by applying IT. However, to articulate the relationship, we use a completely distinct theoretical and empirical approach in this article.…”

“…Highly secure environments with high ROL allow businesses to invest and expand in any country, increasing financial and sustainability performance. For example, the protection of property rights and trust in the police and justice system assist corporations in assuring return on asset (ROA) and return on investment (ROI), driving companies to invest in social and environmental sustainability (Rahi et al , 2022b). Less open competition and poor governance are two factors that contribute to a weaker business contribution by companies in countries with poor ROL and governance (Klomp and de Haan, 2015).…”

“…Corruption makes it easier for businesses to ignore their social and environmental responsibilities in order to maximize profits (Biswas et al , 2012; Sawaan, 2012; Lombardi et al , 2019). A previous study identified that corruption, oppressive governments, poverty, injustice, human rights violations and pollution are interlinked (Frynas, 2009; Rahi et al , 2022b). Corruption promotes bureaucratic inefficiencies and obstructs business advancement, resulting in reduced FP (Hoang et al , 2022; Viglioni et al , 2022).…”

“…In this, government and public institutions are expected to provide the structure that IJAIM 32,1 simultaneously guarantees efficient use of resources and stable consequences of corporate sustainable policies. The macroeconomic condition of a country in earlier studies found to determine the intensity of governmental engagement toward sustainability (Tolliver et al, 2020;Rahi et al, 2022b;Rahi et al, 2023). In countries where the macroeconomic conditions are weak, governmental institutions are less engaged in sustainability policies than in countries with strong conditions (Rahi et al, 2022b).…”