Investigating green investment payoff in China

Abstract

PurposeThis study aims to use Porter’s hypothesis (PH), which tests whether corporates’ green investment has an impact on their economic performance (EP). The study argues that corporates’ environmental strategy should allow for a “win-win” situation concerning regulatory compliance.Design/methodology/approachThe quantitative methodology used PH to test empirically the economic consequences of corporates’ green investment in China.FindingsThis study indicates that there is a U-shaped relationship between green/environmental investment (EI) and EP. When EI is less, corporates’ EP follows a downward sloping curve until the scale of EI increases and exceeds the “threshold.” From this turning point, EP follows an upward-sloping curve as EI increase. This relationship is more significant in high-polluting companies and state-owned companies.Research limitations/implicationsThe empirical results extend the research field of EI and EP for listed companies in China and cover 1,324 observations over the period 2008–2017.Practical implicationsFirst, the authors expand the research on green/EI and EP using firm-level data. Second, the study empirically tests the economic consequences of corporates’ green investment. Third, this study finds a non-linear relationship between green investment and EP due to the heterogeneity of industry attributes and property rights. These findings provide better explanations for the different research conclusions regarding the economic consequences of green investment.Originality/valueCompared to global research, China’s research on EI has mainly focused on the macro and industry levels. There is still a lack of micro-level research. The paper addresses this research gap as the authors use firm-level EI data to capture companies’ green investment efforts in environmentally sustainable development and its subsequent impact on EP.