How nation-level background governance conditions shape the economic payoffs of corporate environmental performance

Abstract

Purpose

Companies develop and implement environmental initiatives in particular national governance and institutional contexts. The purpose of this paper is to study how the background governance conditions of legal systems, economic policies and national culture enable or impede the relationship between corporate environmental performance (CEP) and lagged corporate financial performance (CFP).

Design/methodology/approach

This is an empirical study of 427 MNCs headquartered in 22 different countries. The authors merged data from the SiRi database (generally known as SustainAnalytics now), which contains ratings of stakeholder relations for 427 large corporations with publicly available data from Datastream.

Findings

Drawing on the new institutionalism in economics and sociology, the authors show that common-law systems and high economic freedom in a company’s home country tend to strengthen the CEP-CFP link. In addition, the home-country cultural variables of uncertainty avoidance, long-term orientation, and (to a lesser extent) masculinity may impede the deployment of CEP for maximum financial gain at the organizational level. The macrolevel analysis starts to move the field toward an understanding of the particular national governance configurations that provide the most supportive conditions for any CEP-CFP links.

Originality/value

One of the central questions in the field of organizations and the natural environment is about the background conditions that may incentivize and reward firms to be more environmentally responsive. The paper addresses this issue through a nation-level investigation of the background governance conditions that may help or hinder the relationship between CEP and CFP.

Citation

Sandhu, S., Orlitzky, M. and Louche, C. (2019), "How nation-level background governance conditions shape the economic payoffs of corporate environmental performance", Management Decision, Vol. 57 No. 10, pp. 2714-2739. https://doi.org/10.1108/MD-11-2017-1191