Abstract
Despite growing interest in corporate environmental and sustainability issues, empirical evidence on the relationships between firm-level environmental initiatives and financial performance across different formal institutions, especially in developing economies, remains limited. Drawing on a sample of 6,418 firm-year observations from 10 industries across 23 developing countries, we employ fixed-effects panel regression models to examine the effects of corporate environmental initiatives on firm value and the moderating roles of formal institutions. Our results reveal that efficiency in resource use enhances firm value, whereas environmental innovation and emissions reduction have no significant effect. Furthermore, formal institutions are positively associated with firm value but weaken the positive association between environmental initiatives and firm value. Our findings remain robust to endogeneity issues and various sensitivity tests. Our additional analysis further demonstrates that corporate governance increases the financial benefits of efficiency in resource use. Additionally, we find a positive association between carbon emissions and firm value, and formal institutions negatively moderate this association. This study is among the first to explore the relationships among environmental initiatives, firm value, and formal institutions in developing economies. Our findings offer important policy and practical implications with regard to corporate sustainability, national governance systems, and grand ecological challenges.