ABSTRACT This study examines the strategic implications of environmental activities on firm performance, specifically focusing on contribution per dollar sale and operational cost efficiency within US companies. Using a comprehensive dataset of 17,735 firm‐year observations from 2008 to 2023, we find that firms engaging in green revenue generation do not pass the associated costs on to consumers through higher prices, leading to a reduction in contribution per dollar sale. However, these firms enhance their operational cost efficiency to offset this impact and maintain profitability, underscoring the operational efficiencies gained from sustainability initiatives. To address potential endogeneity, we employ two‐stage least squares and difference‐in‐differences approaches. Our results indicate that the relationship between green revenue generation, cost efficiency and profitability remains robust regardless of regulatory pressures, indicating that sustainability efforts are embedded within broader strategic and operational practices. We also find that firms adjust marketing expenditures to absorb costs, illustrating a purposeful alignment of sustainability goals with competitive positioning. This study contributes to the strategic management literature by highlighting the role of environmental activities in shaping firm performance and operational strategy. We offer valuable insights for businesses, policymakers and standard setters seeking to balance sustainability with financial performance.
Karim et al. (Mon,) studied this question.