Murad Abdulsalam Qamhan, Marwan Mansour, Mo’taz Al Zobi, Mohammed W.A. Saleh, Abdulrahman Alomair, Sajead Mowafaq Alshdaifat
This study addresses the critical question of when green investments pay off by investigating how firm size generates asymmetric threshold effects in the relationship between eco-innovation and corporate financial performance. While prior research reports mixed findings, most studies rely on linear specifications that overlook structural breaks across firm scales. Using a dynamic panel threshold regression model on a global sample of 383 non-financial firms (3830 firm-year observations) from 2013–2022, we endogenously identify divergent size thresholds for operational (ROA) and shareholder (ROE) performance. Our findings unveil a significant regime-switching dynamic: for ROA, the positive impact of eco-innovation is confined to firms below the 20.106 threshold, turning marginally negative at larger scales due to coordination and complexity costs. In striking contrast, for ROE, eco-innovation initially imposes a financial burden on smaller firms but becomes a significant value driver once the 21.497 ‘critical mass’ threshold is surpassed. These asymmetric thresholds reconcile prior contradictory evidence by demonstrating that financial outcomes are strictly regime-dependent. The study advances the Natural Resource-Based View by uncovering scale-dependent capability thresholds and provides size-contingent implications for managers and policymakers to mitigate the “liability of smallness” through targeted support and to maximize the financial viability of green transitions.