Green Accounting and Corporate Financial Performance: The Theoretical and Dynamic Empirical Analysis

This paper presents a critical re-evaluation of the connection between the green accounting practices (GAP) and the financial performance of corporates regarding the theoretical disintegration and lack of methodological consistency that has produced conflicting evidence in previous studies. The study, based on a theoretically coherent system of combining the Stakeholder Theory and the Natural Resource-Based View (NRBV), is that there are two functions of environmental accounting in shaping the financial performance, one being legitimate management and the other one strategic capability creation. The analysis is conducted using a longitudinal panel data structure that applies a quality-weighted index of disclosure to measure GAP to a sample of firms in industry sectors with a high sensitivity to the environment. The unobserved heterogeneity, endogeneity, and temporal aspects of effects are controlled by using the dynamic panel estimation methods such as system GMM. The findings provide strong empirical support that green accounting practices have a positive and statistically significant effect on the profitability of the firm and market value. More importantly, the analysis shows that the economic gains of GAP are not short-term but rather long-term and lagged effects are statistically and economically significant. This interpretation brings out the conceptualization of environmental accounting as a long-term strategic investment and not a short-term cost burden. The research holds substantive implications to the literature of sustainability accounting. Theoretically speaking, it promotes a combined stakeholder-NRBV model, and it shows the paramount importance of dynamic, longitudinal analysis. In practice, it gives strong incentives to managers to make green accounting an integrated strategic management system and policymakers to work out standardized reporting and assurance systems that give greater incentives to substantive accountability towards the environment. This study confirms that advanced environmental accounting is instrumental in streamlining the alignment between financial resilience in companies and environmental sustainability by explaining how and when the GAP-performance relationship would be active.