Underperformance feedback and corporate environmental responsibility: coevolution with institutions

According to the behavioral theory of the firm (BTOF), companies with underperformance feedback will initiate problemistic search. However, most previous studies have ignored an important factor, the duration that a firm underperforms. Drawing on BTOF literature, we distinguish two types of underperformance feedback, underperformance intensity and underperformance duration, and examine their effects on CER strategy. Based on a sample of Chinese listed companies, we find a positive relationship between underperformance intensity and CER, but a negative relationship between underperformance duration and CER. We also find that the relationship between underperformance feedback and CER is moderated by formal institution (reflected in the level of environmental regulation) and informal institution (reflected in political connections). Further, we explore the joint moderating effect of formal institution and informal institution to better understand co-evolution of strategy, institutions, and environments in emerging economies.