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Washing away your sins? Corporate environment misconduct, marketing as a buffer, and investment efficiency

Ali, Ashiq; Saeed, Abubakr; Khan, Munir; Riaz, Hammad; Rashid, Mudassar

Authors

Ashiq Ali

Abubakr Saeed

Hammad Riaz

Mudassar Rashid



Abstract

Drawing upon signaling and legitimacy theories, we argue that a firm loses social legitimacy due to firm engagement in environmental misconduct. The loss of social legitimacy causes financial constraints which in turn affect firm investment efficiency. This study examines how firm environmental misconduct (FEM) impacts investment efficiency and the role of marketing efforts and firm size in mitigating these effects. We test our theoretical contentions using the data of S&P 500 firms for the period 2010-2019. Using a two-step system GMM estimation technique, our results show that FEM reduces firm investment efficiency. Further, findings suggest that marketing expenditures (i.e. advertising and R&D expenses) and firm size reduce the negative impact of FEM on firm investment efficiency. This study offers valuable insights to practitioners by suggesting to keenly focus on the FEM effect and use of advertisements as marketing tools to repair a tainted image and build a positive reputation in the market.

Journal Article Type Article
Acceptance Date Mar 30, 2025
Online Publication Date Apr 8, 2025
Publication Date Apr 8, 2025
Deposit Date Apr 25, 2025
Journal Journal of Sustainable Finance & Investment
Print ISSN 2043-0795
Electronic ISSN 2043-0809
Publisher Taylor and Francis
Peer Reviewed Peer Reviewed
Volume 15
Issue 3
Pages 552-576
DOI https://doi.org/10.1080/20430795.2025.2489390


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