Business success is now significantly shaped by combining competitive tactics and sustainability. The existing literature focuses on the effect of sustainability practices on corporate financial outcomes, yet under different levels of product market competition (PMC) are largely unexplored. Thus, the present study aims to analyze the link between ‘sustainable practices’ and ‘firm financial performance’ (FFP), considering the moderating role of PMC. We analyzed a sample of 569 Indian listed firms from 2010 to 2022, using the Feasible Least Squares (FGLS) technique. The study reveals that sustainability practices enhance firm’s internal and external earnings. Further, the moderating role of PMC acts as a disciplinary mechanism. Under high PMC level, sustainability practices increase firm’s internal earnings, while with low PMC, sustainability practices do not carry significant influence. The present study also observed that only environmental practices negatively impacting firm’s internal earnings in non-competitive environments. Furthermore, PMC does not influence the link between sustainability practices and external earnings. This finding validates and provides a robust result by addressing the endogeneity concerns through ‘two-stage least squares’ (2SLS) method and different post-diagnostic tests. The findings complement the deterrence hypothesis and stakeholder theory of corporate disclosure by integrating PMC with sustainability practices and FFP. The firm should strategically align the adoption of sustainability practices with competitive forces to enhance FFP, strengthen market assurance, and maintain long-run value creation. The study underscores the significance of sustainability practices as a strategic tool in competitive markets. It offers theoretical and practical implications for corporate decision-makers, investors, policymakers and academics by formulating effective strategies and policies that develop resilience under competitive environments while balancing short-time gains and long-run performance.
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