Doing well by doing good: How corporate environmental responsibility influences corporate financial performance

Abstract

Abstract The natural resource‐based view suggests a relationship between corporate environmental responsibility (CER) and corporate financial performance (CFP), because intangible assets accrued by a firm constitute competitive advantages. However, the role of corporate reputation as a valuable intangible asset in the CER–CFP link has yet to be examined. We fill this gap by examining the effect of a firm's reputation in terms of prominence and favorability in interactively mediating the CER–CFP link. Using a sample of 10,995 firm‐year observations in China, we find that CER enhances a firm's prominence and favorability, through which CER indirectly improves CFP. Additionally, the results of moderated mediation analysis indicate that the indirect effect of CER on CFP via improving prominence (favorability) is more positive and significant in high levels of favorability (prominence) than in low levels.