Unlocking the Relationship Between Corporate Environmental Performance and Financial Outcomes Under National Environmental Policy Framework: Panel Evidence From China

ABSTRACT This study examines the relationship between corporate environmental performance (CEP) and corporate financial performance (CFP) under China's evolving environmental policy regime. Using a panel dataset of 1,312 Chinese A‐share listed firms from 2010 to 2023, we find a significant negative association between CEP and CFP. The findings challenge the assumption that improved CEP necessarily enhances financial outcomes and suggest that, in emerging markets, environmental improvement may impose short‐term financial burdens on firms. National environmental policies change the CEP–CFP relationship in heterogeneous ways, with some policies intensifying the negative association and others attenuating it. The financial consequences of CEP are context‐dependent and affected by policy design, regulatory enforcement, and the maturity of market‐based incentive mechanisms. Drawing on the cost–benefit perspective, institutional theory, stakeholder theory, and the resource‐based view, this study advances extant literature by highlighting that the CEP–CFP relationship is policy‐driven, offering implications for managers and policymakers.