The Curvilinear Relationship Between Environmental Performance and Financial Performance: An Investigation of Listed French Firms Using Panel Smooth Transition Model

We employ the Panel Smooth Transition Regression model to explore the non-linear relationship between environmental performance and financial performance. Our main purpose is to ask to the long-standing question ‘when it pays to be green?’ by identifying the threshold values of environmental performance that determine the smoothness of regime switching. Using a panel of 61 French companies from 2005 to 2017, our results show an inverted-U relationship and an inverted-V relationship when Tobin's Q and ROA are respectively used. Our findings support the standard microeconomic theory as well as the outcomes of environmental regulations within the Porter Hypothesis theoretical reasoning.