Relationship between Sustainable Management Activities and Financial Performance: Mediating Effects of Non-Financial Performance and Moderating Effects of Institutional Environment

Yuhan Liu,Choo Yeon Kim,Jae Wook Yoo,Eun Hwa Lee

doi:10.3390/su14031168

Abstract

The importance of corporate responsibility for society and environments is emphasized by increasing influence of firms on various stakeholders. Firms strengthen environmental, social, and governance (ESG) activities, which are critical elements for sustainable management. However, there are inconsistent findings on the relationship between ESG activities and firms’ financial performance in prior studies because of the lack of full consideration of internal mechanisms and external conditions. To overcome this limitation, this study investigates the mediating effect of non-financial performance and the moderating effect of the institutional environment on the relationship between firms’ ESG activities and their financial performance in a unified moderated mediation model. Samples for empirical analyses were collected by a survey from 304 small and medium-sized Chinese manufacturers. The results of a mediation analysis reveal that each ESG activity has a positive effect on firms’ financial performance, and the impact of ESG activities on financial performance is completely mediated by non-financial performance. The results of a moderated mediation analysis further indicate that the mediating effect varies depending on the level of institutional pressure from the government, consumers, and competitors. The study suggests the need for interdisciplinary research in sustainable management and institutional theory and emphasizes the importance of sustainable management for performance improvement in a changing environment.

Highlights

Published: 20 January 2022An increase in environmental problems, such as global warming and water pollution, and social problems, including poverty, human rights violations, and wealth inequality, gives firms significant responsibilities vis-à-vis the environment and society [1,2]
According to stakeholder theory and legitimacy theory, sustainable management activities enhance stakeholders’ perception of corporate social responsibility, corporate image, and brand value, which in turn increase firms’ financial performance [26]. Based on these theoretical perspectives, this study investigates the role of non-financial performance, measured by employee satisfaction level, stakeholder satisfaction level, external image, social reputation, and the brand value, as a mediator that links a relationship between ESG
Along with a mounting interest in corporate sustainability in both developed and emerging countries, firms have pursued sustainable management through ESG activities to survive amid rapid environmental changes, such as the coronavirus disease 2019 pandemic

Summary

Introduction

Published: 20 January 2022An increase in environmental problems, such as global warming and water pollution, and social problems, including poverty, human rights violations, and wealth inequality, gives firms significant responsibilities vis-à-vis the environment and society [1,2]. A firm’s fulfillment of environment- and society-related responsibilities has become an essential criterion to determine its sustainability [1]. Amid these changes, studies in the field of sustainability have steadily increased. Velte [6], Huang [7], and Friede et al [12] have demonstrated a positive effect of ESG activities on firm performance, whereas Zhao et al [13] have shown no significant effect of ESG activities on firms’ return on capital employed (ROCE). Duque-Grisales [17] and Ruan [18]

Methods

Results

Conclusion