Does corporate green investment enhance profitability? An institutional perspective

Abstract

Using the institutional theoretical perspective, this study seeks to unearth the antecedents of the mixed results in the extant literature regarding the association between corporate green investment (CGI) and profitability. The study utilized a novel dataset comprising environmental research data from Chinese A-share listed companies for the period 2010–2019. The findings indicate that CGI enhances profitability and that the positive association is reinforced by the promulgation of Environmental Protection Law 2015. Regional development also augments CGI’s positive effect on firms’ profitability. Nevertheless, no significant association is observed between firm profitability and CGI among firms operating within environmentally sensitive sectors. Our findings imply that apart from regulatory forces, normative and cognitive pressures are also key instruments that may be employed by governments to motivate firms to embrace greener and more sustainable practices.