When Purpose Backfires: Threshold Legitimacy Dynamics in Corporate Sustainability Transformation

ABSTRACT Corporate purpose reorientation towards sustainability has intensified across industries, yet operational sustainability outcomes often display a non‐monotonic trajectory. Drawing on legitimacy theory as a primary, autonomous theoretical lens rather than as a subordinate component of institutional theory, this study investigates whether sustainability‐oriented purpose generates threshold‐dependent rather than linear performance effects. Using a two‐study empirical design on 614 European listed firms (2010–2023), Study 1 applies an event‐study difference‐in‐differences approach exploiting the implementation of Directive 2014/95/EU as an exogenous governance shock. Results show short‐term improvements in emissions intensity that attenuate within several years. Study 2 employs dynamic System GMM modelling to identify the underlying mechanism, revealing an inverted‐U relationship between purpose reorientation and operational sustainability outcomes. Field‐level scrutiny accelerates threshold onset, whereas organisational slack buffers attenuation. These findings extend legitimacy theory by specifying when legitimacy mobilisation gives way to decoupling: early mobilisation improves sustainability performance, but symbolic intensification beyond implementation capacity induces decoupling pressures that weaken outcomes.