The moderating effects of cultural differences on the relationship between Corporate Sustainability Performance and Corporate Financial Performance
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This study explores the moderating effect of cultural differences on the link between Corporate Sustainability Performance (CSP) and Corporate Financial Performance (CFP). The understanding of this link is becoming more important as companies experience increasing pressure from stakeholders to improve CSP but also have to show a desirable CFP. This study argues that companies financially benefit more when improving CSP if sustainability is more important in a culture. In addition to the primary benefits of CSP, these companies are better able to improve their organizational legitimacy. Organizational legitimacy can improve CFP through better stakeholder support. Using a sample of 40,251 company-year observations from 53 countries between 2012 and 2020, and Hofstede model of cultural dimensions, the findings show that CSP has a positive effect on long term CFP, and a negative effect on short term CFP. The long term effect is weaker for companies headquartered in cultures characterized by high power distance, high masculinity, and high long term orientation. The long term effect of CSP on CFP is more positive for companies headquartered in cultures characterized by high individualism, high uncertainty avoidance, and high indulgence. The results indicate that cultural differences moderate the link between CSP and CFP.
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