Sustainable entrepreneurship: When does environmental compliance improve corporate performance?

Abstract

AbstractConcerted effort to reduce ecological damages requires that the role of enterprises should be extended to incorporate environmental issues into their core business objectives. Despite huge developments in sustainable entrepreneurship research, outcomes of sustainable entrepreneurship uptake remain largely unclear. Drawing on data of Chinese firms, and utilizing fixed effects regression, our paper evaluates the conditions under which compliance with environmental regulation may enable or constrain corporate performance. We find that environmental compliance lowers corporate market performance and improves financial performance at the same time. We also find that the decline in market performance is reversed for large and privately owned enterprises, highlighting the role of firm size and ownership in corporate performance. When distinguishing between market‐ and financial performance, our evidence shows that environmental compliance will most likely improve market performance when enterprise carbon intensity level is low and improve financial performance when enterprise carbon intensity level is high. As we have discussed in our paper, these results have several implications from the point of view of managers, firm stakeholders, and policymakers.