ABSTRACT Growing expectations from regulators, investors, and society have compelled manufacturing firms operating in environmentally sensitive industries to intensify investments in environmental and social initiatives. Despite this shift, empirical evidence on whether sustainability investments enhance firm performance remains mixed, and the conditions under which performance gains occur are still not well understood. Grounded in stakeholder theory and legitimacy theory, this study examines the performance effects of green and social investments and assesses the moderating role of stakeholder pressure. Specifically, the study pursues three objectives: to evaluate the effect of green investment on firm performance, to evaluate the effect of social investment on firm performance, and to determine whether stakeholder pressure conditions these relationships. The analysis draws on panel data of 683 environmentally sensitive manufacturing firms from Sub‐Saharan Africa, Asia, and Europe over the period 2008 to 2023. Fixed‐effects and random‐effects panel regression models are employed, while potential endogeneity concerns are addressed using instrumental‐variable two‐stage least squares estimation. The empirical findings indicate that both green and social investments are positively and significantly associated with firm performance. Stakeholder pressure also exhibits a direct positive effect on performance and strengthens the relationship between sustainability investments and firm performance. The study concludes that sustainability investments generate stronger performance outcomes when firms operate under high stakeholder pressure globally and consistently. By identifying stakeholder pressure as a boundary condition, the study helps reconcile mixed evidence in the sustainability performance literature across diverse institutional contexts.
Dawuni et al. (Mon,) studied this question.