ESG Improvement and Financial Performance Trade-Offs: A Cross-Country Cultural Perspective

Abstract

Against the backdrop of global sustainability transitions and the growing importance of ESG investing, firms face increasing trade-offs between short-term financial objectives and long-term ESG commitments. While previous studies have mainly examined how ESG performance affects financial outcomes, less attention has been paid to whether financial performance influences subsequent ESG strategies and how the national culture shapes this relationship. Drawing on the resource-based view and Hofstede’s cultural dimensions theory, this study employs cross-country firm-level panel data and logistic regression models to examine whether prior-year financial performance target achievement promotes subsequent ESG improvement. The results show that firms achieving their financial targets are significantly more likely to improve ESG performance in the following year, suggesting that financial success provides the resources needed to support ESG investment. Moreover, the effect varies across national cultural contexts, highlighting the moderating role of cultural heterogeneity. By examining the reverse pathway from financial performance to ESG, this study extends the conventional ESG–financial performance literature and provides new evidence of the dynamic interaction between financial objectives and ESG strategies. These findings also contribute to understanding how national culture influences corporate sustainability decisions and strategic resource allocation.