Should Start-Ups Be Green? Corporate Environmental Responsibility, Institutional Contexts, and Financial Performance of New Ventures

Abstract Should new ventures with limited resources invest in corporate environmental responsibility (CER)? Considering the significance of entrepreneurship’s considerable social and economic influences, this question is critical for both researchers and practitioners. Drawing on signaling theory, we argue that CER is an effective strategy for new ventures to overcome the liability of newness by shaping accountability and professionalism perceived by stakeholders, which in turn enhances their financial performance. Furthermore, this positive impact is reinforced by new ventures’ corporate political activity, whereas institutional pressure weakens such an impact. Using a nationally representative sample of 2,147 Chinese new ventures, these hypotheses are largely found supported. This research makes important theoretical contributions to the entrepreneurship literature by shedding new light on how new ventures overcome the liability of newness, and also extends the environmental management literature by providing a novel and entrepreneurship-based explanation regarding the performance implications of CER.