Environmental performance and financial performance during COVID-19 outbreak: Insight from Chinese firms

Abstract

The global pressure to reduce carbon emissions on high-carbon-emitting economies has intensified significantly in recent years. However, these efforts' effect on the firm's financial performance (FP) has been a major concern. This research investigates the relationship between environmental performance (EP) and FP of Chinese firms considering the effect of the COVID-19 outbreak. Data was collected from Refinitiv DataStream and span the period of 2017-2020. In addition to the fixed-effects regression, the novel dynamic panel bootstrap corrected fixed effects and panel corrected standard errors methods were utilized to test the hypotheses. Obtained results revealed two key findings. First, there is weak evidence that higher EP increases firms' FP. Second, the relationship between EP and FP is positive in times of economic distress, meaning that firms must continue investing in environmentally ethical and sustainable projects during the crisis. Our empirical findings extend the existing literature by showing that even in times of crisis, such as COVID-19, an environmentally friendly business model positively affects the firm's financial structure. We discuss the policy recommendations implied by our findings for investors, business owners, managers, and officials in the conclusion section.