Re-thinking about U: The relevance of regime-switching model in the relationship between environmental corporate social responsibility and financial performance

Notion of ‘when it pays to be green?’ can be identified by the threshold values of environmental corporate social responsibility performance that determine the smooth movement from one regime to another. We examine a potential regime switching as a novel framework in the analysis of the nonlinear relationship between environmental corporate social responsibility and financial performances employing a Panel Smooth Transition Regression model. Using a panel data of listed French, German, Italian, and Spanish firms over 2005 to 2017, the results show various and different relationships ranging from nonlinear positive, nonlinear negative, to inverted U-shaped. We discuss the consistence of our findings to the theoretical model of different possible relationships.