Impact of Environmental Investment on Financial Performance: Evidence from Chinese listed Companies

Abstract

Using the data of Chinese listed companies during 2012-2016, this study examines the effect of environmental investment on financial performance, as measured by return on assets (ROA). We also examine the moderating effect of industry attributes, company ownership, and region on this relationship. The empirical results show that there exists a U-shaped relationship between environmental investment and financial performance. However, only 11% of Chinese listed companies can attain profitable environmental investment. In addition, the impact of environmental investment on financial performance in state-owned enterprises (SOEs) is higher than that in private-owned enterprises (POEs), and a company's environmental investment in China's eastern regions can do more to promote financial performance. The findings of this study can help managers to reasonably manage the tensions between environmental investment in relation to stakeholders and the pursuit of profitability.

Research on the Relationship between Listed Companies' Carbon Footprint, Environmental Social and Governance Investment and Market Valuation Based on Experimental and Mathematical Statistics Analysis

“…Moreover, higher environmental performance may diametrically elicit prominent financial performance. Jian Xu et al claim the correlation between environmental investment and financial performance can be illustrated by a virtually U-shaped curve, which elucidates that investing more in greenness can give rise to better financial performance and vice versa [8]. On the basis of 243 firms utilizing independently developed environmental ratings, Russo and Fouts established a model grounded on the resource-based view of firms, corroborating high levels of environmental performance corresponding to enhanced profitability.…”

U‐shaped relationship between environmental performance and financial performance of non‐financial companies: An empirical assessment

“…Further, the understanding of a non-linear association amongst environmental and economic practices emerged with Barnett and Salomon (2012), who argued that, "as the firm upsurges environmental performance, at initial FP declines, but subsequently rebounds as the environmental performance rises with more critical resources and better management discretion in the long run." Similarly, researchers like Hart (1995); Russo and Fouts (1997); Jin and Xu (2020) In the empirical model of the study, four firm-specific parameters are taken as the control variables with the motto of improving the correctness of forecasts and the dependability of the inference from the analysis. These parameters are frequently used in earlier studies like company size, board size, firm age, debt-equity ratio (DER) (Al-Tuwaijri et al, 2004).…”

How do environmental protection expenditure and green technology innovation affect synergistically the financial performance of heavy polluting enterprises? Evidence from China

“…Based on the environmental perspective, Guenster et al (2011) found that corporate environmental protection expenditure has no significant impact on financial performance, whether positive or negative. In addition, some researchers have proposed that there is a U-shaped curve relationship between enterprise environmental protection expenditure and financial performance (Jin and Xu 2020). Some literatures analyze the impact of environmental protection expenditure on the later financial performance of enterprises from a cross period perspective.…”