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

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

Journal of Sustainable Finance & Investment, 2025, vol. 15, issue 3, 552-576

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.

Date: 2025
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DOI: 10.1080/20430795.2025.2489390

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