Revisiting the influence of corporate sustainability practices on corporate financial performance: An evidence from the global energy sector

Abstract

AbstractThe purpose of this study is to theoretically and empirically extend the debate of the curvilinear linkage between corporate sustainability performance and its reporting practices (CSPR) and corporate financial performance (CFP) over its linearity assumption. The study focused on the financial and non‐financial metrics of the top global energy firms from 2006 to 2018 to accomplish this objective. It employed an estimated generalized least square method on the balanced panel of 3211 firm‐year observations. The findings assert the existence of a curvilinear relationship by spurning the linearity assumption. Further, results revealed a significant inverted U‐shaped relationship between CSPR and CFP. In addition to this, the investigation reveals that this relationship exists with the environmental and social attributes of CSPR. While the governance attribute was initially insignificant, however, it also exhibits a significant inverted‐U relationship after interacting with earnings. As a result, it adds to the existing literature by identifying earnings as a significant moderator in explaining the curvilinear relationship between CSPR and CFP. The inverted U‐shaped relationship may assist top management in developing a sustainable social and environmental policy based on a reactive strategy and help in formulating strategies to balance the value‐cost trade‐off for sustainable development.