Abstract: Whether environmental performance and financial performance can be simultaneously improved in heavily polluting enterprises hasn′t solved up to now. Most studies show that the improvement of firm′s environmental performance can effectively promote financial performance. Although most of the firms aware of that, they adopt difference strategies. Some firms have achieved a win-win situation in both environmental and economic benefits through introducing leading environmental strategy. Others have not yet adopted measures for pollution prevention, and they enhance their economic performance at the expense of environmental performance. The relationship between environmental performance and financial performance remains to be further examined.
In addition, firms with different characteristics balance their environmental performance and financial performance differently. There is an interaction between the environmental performance and the enterprise characteristics, such as size and ownership, which has been little confirmed in the literature. Exploring the interaction between environmental performance and the characteristics of firms is helpful to understand the reasons of the distinctive in the relationship between environmental performance and financial performance in different firms.
Furthermore, the interaction between the strategy and enterprise characteristics could be explored. Corporate performance is not only constrained by the resources, but also closely related to the subjective strategic. Environmental disclosure, as one of the strategies for heavily polluting enterprises, interacting with enterprise characteristics, might influence the relationship between environmental performance and financial performance. This study attempts to analyze the joint moderating effects of the characteristics and the environmental disclosure in heavily polluting enterprises.
Thus, based on legitimacy theory and stakeholder theory, we firstly analyze the effect of firm environmental performance on financial performance. Most of the firms in heavily polluting industries have faced severely environmental pollution while driving China′s economic development. Although central government of China has established strict environmental policies, local governments have ignored the environmental hazards of firms to promote local economic growth, which led firms to sacrifice environmental performance to improve financial performance. Thus, there is a negative effect between environmental performance and financial performance in heavily polluting enterprises.
Then, the larger of the firm size, the more it will reduce the negative effect of environmental performance on financial performance. Large firms can often obtain more resources, and more easily to form economies of scale. When they improve environmental performance, they can try to mitigate the decline of financial performance by using other alternative resources. Besides, large firms are beneficial to technological innovation, and they will be more active and effective in green innovation to reduce financial performance. Considering of firm ownership, decision-making in state-owned firms are more inclined to follow national policies, and implement environmental practice. As a result, environmental management capabilities are enhanced, negative impact of environmental performance on financial performance is weakened. So compared with private firms, state-owned firms will weaken the negative impact of environmental performance on financial performance.
Finally, the moderating effect of firm size and ownership on environmental performance and financial performance depends on environmental disclosure. Environmental disclosure can be regarded as a strategy for firms, because environmental disclosure can create good image and attract more stakeholders to invest. As environmental information is disclosed actively inheavily polluting enterprises, the environmental image is constantly being shaped, which is conducive to attracting investors to provide them with scarce resources. The resource disadvantages of smaller firms are gradually being ignored, so negative effects of environmental performance on financial performance are weakened. Similarly, the resource disadvantages of private firms will be ignored through the firm′s active environmental disclosure, and environmental disclosure attracts investors who care about environment to introduce resources into firms, thereby weakening the negative impact of environmental performance on financial performance.
In order to verify above hypothesis, we analyze the data of 159 listed typical firms in highly polluting industry in China, which is screened from the Guotai′an database. The findings indicate that:
(1) There is a negative relationship between environmental performance and financial performance inheavily polluting enterprises. The result is different from the research conclusions proposed by most scholars that improving environmental performance of firms can improve financial performance. The reason may be that the scope of this study is defined as heavily polluting industries. These industries accompany high costs for environmental protection, and prefer to decrease environmental input to gain profit.
(2) In addition, the negative relationship between environmental performance and financial performance is positively moderated by firm size. Larger firms has richer resources, and more easily to form large-scale economy, which will help alleviate the negative impact of environmental investment on financial performance. However, the moderating effect of the firm ownership is not verified, that is, the effect of financial performance on environmental performance does not differ significantly between state-owned and private firms.
(3) Thirdly, the moderating effect of enterprise characteristics on the relationship between environmental performance and financial performance in highly polluting firms depends on environmental disclosure. When the level of environmental disclosure is low in the smaller firms, the greater the negative impact of its environmental performance on financial performance. This conclusion shows that different levels of corporate environmental disclosure will lead to differences in the moderating effects of enterprise characteristics, which highlights the importance of environmental disclosure.
This study also has some practical implications. From the perspective of firms,heavily polluting enterprises should actively carry out environmental disclosure, so that more investors pay attention to their environmental actions, and provide more resources to them. From the perspective of government, policy makers should continue to improve environmental laws and regulations, increase penalties of pollution emissions to heavily polluting enterprises, and urge firms to actively disclose environmental information. At the same time, governments had better formulate environmental disclosure standards and encourage firms to disclose not only current information, but also environmental plans. Finally, the government should strengthen publicity and education about environmental disclosure, popularize the role of environmental disclosure in promoting environmental protection and green innovation, making heavy polluting firms aware of the importance of environmental disclosure.

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