Effects of corporate environmental responsibility on financial performance: The moderating role of government regulation and organizational slack

Accompanied with rapid economic growth in the emerging economies is the severe ecological deterioration. As major pollution makers and main energy consumers, enterprises are expected to be responsible to the natural environment. However, it's still in dispute whether and when it pays to be green. Based on institutional theory and agency theory, this paper explores the impact of corporate environmental responsibility (CER) on corporate financial performance (CFP) and studies the moderating effect, as well as the co-moderating effect, of external government regulation and internal organizational slack on the relationship. With the data of 1179 observations of Chinese energy-intensive listed companies in 2012-2014, empirical results show that CER significantly positively influences CFP, and that the moderating effect of government regulation is significantly positive, i.e., stringent government regulation significantly reinforces the positive influence of CER on CFP, while organizational slack has a negative moderating effect, i.e., the firms with abundant organization slack are less likely to gain a higher financial performance from undertaking environmental responsibility. In addition, the moderating effect of organizational slack also depends on the degree of government regulation, that is to say, stringent government regulation weakens the negative moderating effect of organizational slack between CER and CFP. The results demonstrate that it pays to be green, especially those lean firms with few slacks under stringent government regulation. (C) 2017 Elsevier Ltd. All rights reserved.