Enhancing Green Firm Performance Through CSR , Circular Economy Practices and Green Investment: The Role of Eco‐Innovation and Carbon Trading Regulation

Abstract

The escalating global pressure on industrial firms to align their operations with environmental sustainability imperatives has intensified scholarly interest in the antecedents of green firm performance (GFP). Despite the proliferation of fragmented studies on individual sustainability drivers, a significant theoretical void remains regarding how multiple environmental strategies interact within a unified mechanism to drive performance. This study examines the influence of corporate social responsibility (CSR) practices, circular economy practices (CEP) and green investment (GI) on GFP within China's rapidly evolving regulatory landscape. Drawing on stakeholder theory, the natural resource‐based view (NRBV) and institutional theory, the research conceptualises eco‐innovation (EI) as a mediating mechanism through which CSR, CEP and GI translate into superior environmental performance outcomes. Furthermore, carbon trading regulations (CTR) are proposed as a boundary condition that moderates the EI–GFP relationship. Using a quantitative cross‐sectional survey design, data were collected from 283 managers and executives employed in Chinese manufacturing and energy firms subject to the national emission trading scheme (ETS). Structural equation modelling (SEM) via AMOS was employed to test the hypothesised relationships. Findings confirm that CSR, CEP and GI each positively influence GFP, with EI serving as a significant partial mediator for all three antecedents. Notably, CTR significantly strengthens the EI–GFP nexus, confirming that stringent regulatory market mechanisms act as vital catalysts that amplify the performance dividends of innovation. The study offers novel theoretical insights by going beyond the prevailing siloed approach to sustainability research. By formally integrating stakeholder theory, the NRBV and institutional theory into a single, empirically validated framework, this study uncovers the ‘black box’ of green performance by establishing EI as a parallel transmission mechanism for multiple sustainability practices, while theoretically repositioning CTR from a static contextual backdrop to a dynamic boundary condition that amplifies the innovation‐to‐performance payoff. Practically, these findings provide critical guidance for policymakers: rather than relying on ETS solely to cap pollution, regulators must actively maintain high carbon price stringency and enforcement rigour to structurally incentivise eco‐innovation. Furthermore, policymakers are advised to synergise carbon market mechanisms with green finance policies to reduce the cost of GIs, thereby accelerating the virtuous cycle of corporate sustainability, innovation and achieving national dual‐carbon goals.