Linking economic performance and sustainable operations of China’s manufacturing firms: What role does the government involvement play?

Abstract Following 3289 firm-year observations of China’s manufacturing firms given their significant impacts on climate change, substantial contributions to industrial prosperity, and distinctive governance mode, we investigate the moderation effect of government involvement in linking firms’ economic performance and sustainable operations. We clarify the role of government involvement with elements of government stake (state-holding) and government incentive (fiscal subsidy), together with economic performance indicators divided into shareholder equity, R&D intensity, and profitability. Our empirical findings witness that both shareholder equity and profitability significantly improve sustainable operations, while R&D intensity has a significantly negative effect on sustainable operations. State-holding exercises a significant moderation effect between economic performance and sustainable operations, while the positive moderation effect of fiscal subsidy is minor. Moreover, there is a difference in the roles of high and low state-holding with higher state-holding having a stronger moderation effect, while fiscal subsidy at different levels does not generate such difference. Overall, our findings agree with the positive role of state-holding in linking economic and sustainability outcomes, while further analysis is required to improve the role of government incentive for supporting manufacturers’ sustainability strategies.