Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
This study investigates the two-way relationship between corporate environmental performance (EP) and corporate financial performance (FP). The relationship between EP and FP remains ambiguous after decades of study. To contribute to the ongoing debate, we estimate a system of dynamic equations simultaneously by deploying structural equation modeling (SEM). The study employs annual data on all constituents of the S&P 500 index from 2011 to 2020 retrieved from Bloomberg and Refinitiv. In contrast to most literature, this study conclusively finds that FP affects EP only for a subset of firms (brown firms) while the effect of EP on FP differs across model specifications, estimation methods and measures of FP and EP, rendering the effect inconclusive. Further, the findings reveal that environmental expenditures entirely moderate the effect of FP on EP. The study concludes that FP boosts EP in brown firms only when environmental expenses are incurred.