Market reaction to responsible production practices adoption: The role of firm size and financial slack

Abstract

The tension between the costs and benefits of adopting responsible production practices has engendered firms' hesitation about embracing legitimate actions in their business operations. Drawing upon the legitimacy theory and resource-based view, this study delves into the market responses to responsible production practices adoption and the boundary conditions of firm size and financial slack influencing the performance link. Using a dataset comprising 392 manufacturers that adopted responsible production practices between 2016 and 2023; this study employs a short-term event study approach to unveil the positive market value of responsible production practices adoption. Through cross-sectional regression analysis, we discern that firm size and financial slack can strengthen the market value of adopting responsible production practices, especially during the COVID-19 pandemic. The findings offer managerial insights for assisting firms in navigating their journey toward responsible production while safeguarding their firm value.