Legitimacy in operations: How sustainability certification announcements by Chinese listed enterprises influence their market value?

Sustainability certifications have been growingly adopted by enterprises with the aim to demonstrate their efforts on environmental and social operations management. Obtaining such certifications can increase enterprises' legitimacy to meet the escalating public expectation for sustainable operations. There are studies examining whether sustainability certifications can benefit adopted enterprises, but not much is known regarding how the performance gains of sustainability certifications vary among enterprises operating under different institutional legitimacy conditions. We examine if Chinese enterprises announcing sustainability certifications as a legitimate action in operations can benefit them for better market value, and how the institutional legitimacy conditions can affect such effect. The institutional legitimacy is examined in two dimensions, namely sociopolitical legitimacy and cognitive legitimacy. The former is measured in two proxy variables related to the government: government ownership and political embeddedness, while the latter is measured in a proxy variable as sustainability communication frequency. Using 210 announcements from publicly listed enterprises in the Chinese stock exchanges regarding their sustainability certifications, we empirically investigate market reaction to the certification announcements on their stock performance considering the role of institutional legitimacy. Findings from event study analyses and hierarchical regressions indicate that announcing sustainability certifications is favorable for their performance in stock prices with stronger effects among enterprises having government ownership but with weaker effects for those having political embeddedness. Moreover, cognitive legitimacy brings no performance gain due to the announcements. Managers need to understand how sustainability certification announcements influence the market value of their enterprises and the performance implications of institutional legitimacy in obtaining the certification.