# 11-026/2/DSF 9 (2011-02-10)

Timo Busch, ETH Zuerich, Switzerland; Bryan T. Stinchfield, Franklin & Marshall College, Lancaster, Carbondale; Matthew S. Wood, Cameron School of Business, University of North Carolina Wilmington
Sustainable development, innovation, firm performance, Tobin’s q, moderation and mediation
JEL codes:
G30, M14, L20, Q01

Management scholars have sought to answer the question: is there a financial payoff for ad-dressing ecological and social issues? We move beyond this question and include a time com-ponent for corporate financial performance (CFP) and a firm’s innovativeness in order to ask: when does it pay? Combining a contingency perspective with the resource-based view of the firm clarifies the positive relationship between corporate environmental and social perform-ance (ESP) and CFP, which only holds in the long-term but not in the short-term. Further, we find support for a moderating effect of innovation on the relationship between the ESP and short-term CFP as suggested by the literature. However, we empirically show that in the long-term, innovation mediates the ESP-CFP relationship suggesting that innovation should be considered as a long-term investment required to unlock the full potential of ESP initiatives.