CORPORATE GREEN GOVERNANCE ON SHORT AND LONG-TERM FINANCIAL PERFORMANCE-A STUDY OF HEAVY POLLUTING ENTERPRICES

Abstract

In recent years, environmental pollution has intensified worldwide, making the alignment of economic growth with environmental sustainability one of the most critical challenges of sustainable development. Although the traditional post-industrial economic model has significantly enhanced productivity and economic growth, it has also led to the overexploitation of natural resources and substantial greenhouse gas emissions, thereby accelerating ecosystem degradation. Given the limited regenerative capacity of the environment, green development that balances economic growth with ecological sustainability has become a global priority. Within this context, China has proposed its “Dual Carbon” strategic goals, aiming to substantially reduce carbon emissions by 2030. As part of this initiative, industries characterized by high levels of pollution particularly in manufacturing, energy, and resource-intensive sectors are required to prioritize green transition policies. At the firm level, this necessitates a shift toward corporate green governance systems that integrate environmental management with sustainable development objectives. However, the implementation of green governance involves significant costs, including technological innovation, installation of pollution-control equipment, and the adoption of new management practices. These investments may negatively affect short-term profitability and financial performance, leading many firms to underestimate the long-term benefits of green governance and delay the transition. Against this backdrop, the present study empirically examines the impact of corporate green governance on financial performance using panel data from 675 large and medium-sized A-share listed firms in high-pollution industries in China over the period 2014–2024. Panel regression models and long-term effect analyses are employed to identify both the short- and long-term financial impacts of green governance. In addition, the study investigates the mediating roles of corporate reputation, green innovation, and financing constraints, as well as the moderating effects of government support and subsidies on this relationship. The findings reveal that corporate green governance exerts a time-varying, two-stage effect on financial performance. In the initial years following implementation, firms experience increased operating costs and reduced profitability, resulting in a negative impact on financial performance. However, over time, as firms strengthen their environmental responsibility, enhance their market reputation, gain greater trust from consumers and investors, improve access to financing, and benefit from government incentives and policy support, green governance significantly improves financial performance. These results demonstrate that green governance is not merely a compliance mechanism to meet regulatory requirements, but rather a strategic investment that enhances firms’ long-term financial sustainability and competitiveness. By providing large-scale, data-driven empirical evidence on the dynamic financial effects of green governance in high-pollution XIV industries, this study makes important theoretical and practical contributions. The findings offer valuable implications for policymakers seeking to refine incentive mechanisms for green transition, for firms aiming to plan green investments in a phased and strategic manner, and for investors evaluating ESG-based decisions more effectively.