Path Dependency and Sustainability: Corporate Strategy as a Catalyst in the Second-Largest Brown Economy
DOI:
https://doi.org/10.47654/v30y2026i4p220-260Keywords:
Path Dependency, Corporate Sustainability, Strategic Orientation, Cost Leadership, Differentiation StrategyJEL Classifications:
G41, G11, G15Abstract
Purpose: This study examines whether path dependency (PD) constrains corporate sustainable performance (CSP) in China and whether corporate strategies, namely cost leadership (CL) and differentiation strategy (DS), condition this relationship. The study is motivated by the problem that firms may remain tied to historical routines even when sustainability pressures require strategic renewal.
Methodology: Using annual firm-level panel data from Chinese A-share listed firms from 2010 to 2022, the study estimates industry- and year-fixed-effects regressions and applies component-level validation, an alternative sustainability indicator, a change-on-change specification, and heterogeneity analysis to assess the stability of the findings.
Findings: The results show that PD is negatively associated with CSP, suggesting that historical routines, technological lock-in, and resource irreversibility restrict firms' ability to improve sustainability outcomes. Cost leadership strengthens this adverse relationship by reinforcing efficiency-oriented routines, whereas the differentiation strategy weakens it by encouraging innovation, flexibility, and resource reconfiguration.
Practical implications: The findings are useful for managers because they show that sustainability improvement requires not only green investment but also a careful review of inherited routines and strategic priorities. Cost-oriented firms should ensure that efficiency pressures do not crowd out green experimentation, while differentiation-oriented firms can use innovation, eco-design, and market uniqueness to overcome path-dependent constraints.
Originality: This study is original because it connects path dependency with CSP and explains how competitive strategy changes the sustainability consequences of historical routines. Unlike prior studies that mainly examine green innovation, digital transformation, board characteristics, or environmental management systems as sustainability drivers, this study identifies PD as an organizational decision constraint and shows that CL and DS operate as opposite strategic boundary conditions.
Decision Sciences relevance: This study contributes to Decision Sciences by showing how strategic choices under historical constraints shape sustainability-related decision-making. It explains how managers' reliance on past routines narrows feasible decision alternatives and how cost leadership or differentiation can either reinforce or reduce this constraint.
References
Abubakar, A., Jahwari, N. S. A., & Bakheet, A. H. (2024). The Role of Environmental and Social Innovations in the Cost Leadership Strategy, Value Creation, and Business Performance: A Comparative Analysis of SMEs and Large Manufacturing Companies. Human Behavior and Emerging Technologies, Article 7078016. https://doi.org/10.1155/2024/7078016
Aklin, M., & Urpelainen, J. (2013). Political Competition, Path Dependence, and the Strategy of Sustainable Energy Transitions. American Journal of Political Science, 57(3), 643-658. https://doi.org/10.1111/ajps.12002
Amit, R. (1986). Cost leadership strategy and experience curves. Strategic Management Journal, 7(3), 281-292. https://doi.org/10.1002/smj.4250070308
Andreassen, A., Busterud, H. P., & Johnsen, B. G. (2024). The Relationship Between Green Innovation and Corporate Brand Image and Reputation: A Multiple Case Study. NTNU. https://doi.org/https://hdl.handle.net/11250/3156159
Arthur, W. B. (1989). Competing technologies, increasing returns, and lock-in by historical events. The economic journal, 99(394), 116-131. https://doi.org/10.2307/2234208
Aylward, D. (2007). Differentiation or path dependency: a critical look at the Australian wine industry. Strategic Change, 16(8), 385-398. https://doi.org/10.1002/jsc.806
Baack, D. W., & Boggs, D. J. (2008). The difficulties in using a cost leadership strategy in emerging markets. International Journal of Emerging Markets, 3(2), 125-139. https://doi.org/10.1108/17468800810862605
Bagadeem, S., & Aldawsari, S. H. (2026). Mitigating corporate biodiversity risk through green finance: The role of green development and climate risk in the USA. Advances in Decision Sciences, 30(2), 258-301.
Bai, Z. D., Hui, Y. C., Jiang, D. D., Lv, Z. H., Wong, W. K., & Zheng, S. H. (2018). A new test of multivariate nonlinear causality. PLoS ONE, 13(1), e0185155. https://doi.org/10.1371/journal.pone.0185155
Bai, Z. D., Li, H., Wong, W. K., & Zhang, B. Z. (2011). Multivariate causality tests with simulation and application. Statistics and Probability Letters, 81(8), 1063-1071.
Bai, Z. D., Wong, W. K., & Zhang, B. Z. (2010). Multivariate linear and non-linear causality tests. Mathematics and Computers in Simulation, 81, 5-17.
Banker, R. D., Mashruwala, R., & Tripathy, A. (2014). Does a differentiation strategy lead to more sustainable financial performance than a cost leadership strategy? Management Decision, 52(5), 872-896. https://doi.org/10.1108/MD-05-2013-0282
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of management, 17(1), 99-120.
Bebchuk, L. A., & Roe, M. J. (2000). A theory of path dependence in corporate ownership and governance. Stan. L. Rev., 52.
Brekke, T., Lenka, S., Kohtamäki, M., Parida, V., & Solem, B. A. A. (2024). Overcoming barriers to transformation in manufacturing firms. A path-dependence perspective of digital servitization. Review of Managerial Science, 18, 2. https://doi.org/10.1007/s11846-023-00641-0
Caron, M. A., & Turcotte, M. F. B. (2009). Path dependence and path creation: Framing the extra‐financial information market for a sustainable trajectory. Accounting, Auditing & Accountability Journal, 22(2), 272-297. https://doi.org/10.1108/09513570910933979
Chatterjee, S., Rana, N. P., & Dwivedi, Y. K. (2024). How does business analytics contribute to organisational performance and business value? A resource-based view. Information Technology & People, 37, 2. https://doi.org/10.1108/ITP-08-2020-0603
Chen, G., Wei, J., & Yanga, Y. (2024). State as a path breaker? Path-dependent behaviours and firm innovation: the moderating role of institutional forces. Technology Analysis & Strategic Management, 36(12), 4232-4246. https://doi.org/10.1080/09537325.2023.2250013
Cheng, Y., Hui, Y., Liu, S., & Wong, W. K. (2022). Could significant regression be treated as insignificant: An anomaly in statistics? Communications in Statistics: Case Studies, Data Analysis and Applications, 8(1), 133-151.
Cheng, Y., Hui, Y., McAleer, M., & Wong, W. K. (2021). Spurious relationships for nearly non-stationary series. Journal of Risk and Financial Management, 14(8), 366.
Coombs, R., & Hull, R. (1998). Knowledge management practices' and path-dependency in innovation. Research Policy, 27(3), 237-253. https://doi.org/10.1016/S0048-7333(98)00036-5
Dangelico, R. M. (2016). Green product innovation: Where we are and where we are going. Business Strategy and the Environment, 25(8), 560-576. https://doi.org/10.1002/bse.1886
Danso, A., Adomako, S., Amankwah-Amoah, J., Owusu-Agyei, S., & Konadu, R. (2019). Environmental sustainability orientation, competitive strategy and financial performance. Business Strategy and the Environment, 28(5), 885-895. https://doi.org/10.1002/bse.2291
David, P. A. (1985). Clio and the Economics of QWERTY. The American economic review, 75(2), 332-337. https://www.jstor.org/stable/1805621
Disli, M., Yilmaz, M. K., & Mohamed, F. F. M. (2022). Board characteristics and sustainability performance: empirical evidence from emerging markets. Sustainability Accounting, Management and Policy Journal, 13(4), 929-952. https://doi.org/10.1108/sampj-09-2020-0313
Goldstein, J. E., Neimark, B., Garvey, B., & Phelps, J. (2023). Unlocking “lock-in” and path dependency: A review across disciplines and socio-environmental contexts. World Development, 161, Article 106116. https://doi.org/10.1016/j.worlddev.2022.106116
Haftor, D. M., & Costa, R. C. (2023). Five dimensions of business model innovation: A multi-case exploration of industrial incumbent firm’s business model transformations. Journal of Business Research, 154, Article 113352. https://doi.org/10.1016/j.jbusres.2022.113352
Hannan, M. T., & Freeman, J. (1984). Structural inertia and organizational change. American sociological review, 149-164.
Hao, J., & He, F. (2022). Corporate social responsibility (CSR) performance and green innovation: Evidence from China. Finance Research Letters, 48, Article 102889. https://doi.org/10.1016/j.frl.2022.102889
He, J.-K. (2016). Global low-carbon transition and China's response strategies. Advances in Climate Change Research, 7(4), 204-212. https://doi.org/10.1016/j.accre.2016.06.007
Heine, K., & Rindfleisch, H. (2013). Organizational decline: A synthesis of insights from organizational ecology, path dependence and the resource‐based view. Journal of Organizational Change Management, 26 (1), 8-28. https://doi.org/10.1108/09534811311307888
Hillestad, T., Xie, C., & Haugland, S. A. (2010). Innovative corporate social responsibility: the founder's role in creating a trustworthy corporate brand through “green innovation”. Journal of Product & Brand Management, 19(6), 440-451. https://doi.org/10.1108/10610421011085758/full/html
Hu, J., Hu, M., & Zhang, H. (2023). Has the construction of ecological civilization promoted green technology innovation? Environmental Technology & Innovation, 29, Article 102960. https://doi.org/10.1016/j.eti.2022.102960
Huang, H.-C., Lai, M.-C., Lin, L.-H., & Chen, C.-T. (2013). Overcoming organizational inertia to strengthen business model innovation: An open innovation perspective. Journal of Organizational Change Management, 26(6), 977-1002. https://doi.org/10.1108/JOCM-04-2012-0047
Hui, Y., Wong, W. K., Bai, Z., & Zhu, Z. Z. (2017). A new nonlinearity test to circumvent the limitation of Volterra expansion with application. Journal of the Korean Statistical Society, 46, 365-374.
Hunt, S. D., & Morgan, R. M. (1996). Hunt S D, Morgan R M. The resource-advantage theory of competition: dynamics, path dependencies, and evolutionary dimensions. Journal of marketing, 60(4), 107-114. https://doi.org/10.1177/002224299606000410
Jiang, Z., & Liu, Z. (2022). Policies and exploitative and exploratory innovations of the wind power industry in China: The role of technological path dependence. Technological Forecasting and Social Change, 177, Article 121519.
Jiang, Z., Lyu, P., Ye, L., & Zhou , Y. w. (2020). Green innovation transformation, economic sustainability and energy consumption during China’s new normal stage. Journal of Cleaner Production, 273, Article 123044. https://doi.org/10.1016/j.jclepro.2020.123044
Jin, S., Wang, J., & Zhu, P. (2025). Environmental scanning, resource orchestration, and disruptive innovation. R&D Management, 55(1), 27-50. https://doi.org/10.1111/radm.12681
Khan, A., Hussain, S., & Sampene , A. K. (2023). Investing in green intellectual capital to enhance green corporate image under the Influence of green innovation climate: A Case of Chinese Entrepreneurial SMEs. Journal of Cleaner Production, 418, Article 138177. https://doi.org/10.1016/j.jclepro.2023.138177
Kuo, F.-I., Fang, W.-T., & LePage, B. A. (2022). Proactive environmental strategies in the hotel industry: Eco-innovation, green competitive advantage, and green core competence. Journal of Sustainable Tourism, 30(6), 1240-1261. https://doi.org/10.1080/09669582.2021.1931254
Le, B. N., Tran, T. H. H., & My, N. N. T. (2026). Market orientation and competitive advantage in Vietnamese food processing enterprises: Exploring the moderating effect of digital orientation. Advances in Decision Sciences, 30(4), 48-84.
Li, C. B., & Li, J. J. (2008). Achieving Superior Financial Performance in China: Differentiation, Cost Leadership, or Both? Journal of International Marketing, 16(3). https://doi.org/10.1509/jimk.16.3.1
Li, D., Huang, M., Ren, S., Chen, X., & Ning, L. (2016). Environmental legitimacy, green innovation, and corporate carbon disclosure: Evidence from CDP China 100. Journal of Business Ethics, 150, 1089–1104. https://doi.org/10.1007/s10551-016-3187-6
Li, L. (2022). Digital transformation and sustainable performance: The moderating role of market turbulence. Industrial Marketing Management, 104, 28-37. https://doi.org/10.1016/j.indmarman.2022.04.007
Lin, W.-L., Cheah, J.-H., Azali, M., Ho, J. A., & Yip, N. (2019). Does firm size matter? Evidence on the impact of the green innovation strategy on corporate financial performance in the automotive sector. Journal of Cleaner Production, 229, 974-988. https://doi.org/10.1016/j.jclepro.2019.04.214
Liu, X., Huang, N., Su, W., & Zhou, H. (2024). Green innovation and corporate ESG performance: Evidence from Chinese listed companies. International Review of Economics & Finance, 95, Article 103461. https://doi.org/10.1016/j.iref.2024.103461
Liu, Y., Zhang, X., & Shen, Y. (2024). Technology-driven carbon reduction: analyzing the impact of digital technology on China's carbon emission and its mechanism. Technological Forecasting and Social Change, 200, Article 123124. https://doi.org/10.1016/j.techfore.2023.123124
Lockett, A., Thompson, S., & Morgenstern, U. (2009). The development of the resource-based view of the firm: A critical appraisal. International journal of management reviews, 11(1), 9-28. https://doi.org/10.1111/j.1468-2370.2008.00252.x
Lu, R., Peng, X., & Reve, T. (2025). Firms’ digital transformation, competitive strategies, and innovation: Evidence from Chinese listed companies. Journal of Management & Organization, 31(2), 575-601. https://doi.org/10.1017/jmo.2024.24
Luciano, D. M. B., & Cruz, B. (2010). Corporate Social Responsibility, Product Differentiation Strategy and Export Performance. Journal of Business Ethics, 91, 325–346. https://doi.org/10.1007/s10551-010-0613-z
Mahoney, J. (2000). Path dependence in historical sociology. Theory and society, 29(4), 507-548. https://www.jstor.org/stable/3108585
Miah, M. R., Islam, M. J., Dhar, S. S., Noor, T. T., Dhar, B. K., Ramachandaran, S. D., & Saha, S. K. (2026). Rethinking governance: Family ownership, gender diversity, and strategic decision-making in emerging markets. Advances in Decision Sciences, 30(4), 25-47.
Mosakowski, E. (1993). A resource-based perspective on the dynamic strategy-performance relationship: An empirical examination of the focus and differentiation strategies in. Journal of Management, 19(4), 819-839. https://doi.org/10.1016/0149-2063(93)90029-M
Mukherjee, T., & Sen, S. S. (2022). Impact of CEO attributes on corporate reputation, financial performance, and corporate sustainable growth: evidence from India. Financial Innovation, 8. https://doi.org/10.1186/s40854-022-00344-7
Nguyen, T. T. H., Wong, W. K., Phan, G. Q., Tran, D. T. M., & Moslehpour, M. (2021). Corporate valuation spurred by information transparency in an emerging economy. Annals of Financial Economics, 16(03), 2150011.
Pierson, P. (2000). Increasing returns, path dependence, and the study of politics. American political science review, 94(2), 251-267. https://doi.org/10.2307/2586011
Redding, S. (2002). Path Dependence, Endogenous Innovation, and Growth. International Economic Review, 43(4), 1215-1248. https://doi.org/10.1111/1468-2354.t01-1-00054
Rehman, S. U., Bhatti, A., Kraus, S., & Ferreira, J. J. M. (2021). The role of environmental management control systems for ecological sustainability and sustainable performance. Management Decision, 9(59 ), 2217-2237. https://doi.org/10.1108/md-06-2020-0800
Rubel, M. R. B., Kee, D. M. H., & Rimi, N. N. (2021). The influence of green HRM practices on green service behaviors: the mediating effect of green knowledge sharing. Employee Relations: The International Journal, 43(5), 996-1015. https://doi.org/10.1108/er-04-2020-0163/full/html
Rycroft, R. W., & Kash, D. E. (2010). Path Dependence in the Innovation of Complex Technologies. Technology Analysis & Strategic Management, 14(1), 21-35. https://doi.org/10.1080/09537320220125865
Schreyögg, G., & Sydow, J. (2011). Organizational Path Dependence: A Process View. Organization Studies, 32(3), 321-335. https://doi.org/10.1177/0170840610397481
Semuel, H., Siagian, H., & Octavia, S. (2017). The effect of leadership and innovation on differentiation strategy and company performance. Procedia - Social and Behavioral Sciences, 237, 1152-1159. https://doi.org/10.1016/j.sbspro.2017.02.171
Sharma, M., Kumar, A., Luthra, S., Joshi, S., & Upadhyay, A. (2022). The impact of environmental dynamism on low-carbon practices and digital supply chain networks to enhance sustainable performance: An empirical analysis. Business Strategy and the Environment, 31(4), 1776-1788. https://doi.org/10.1002/bse.2983
Shimizu, K., & Hitt, M. A. (2005). What Constrains or Facilitates Divestitures of Formerly Acquired Firms? The Effects of Organizational Inertia. Journal of Management, 33(1). https://doi.org/10.1177/0149206304271381
Sun, Y., Gao, P., Tian, W., & Guan, W. (2023). Green innovation for resource efficiency and sustainability: Empirical analysis and policy. Resources Policy, 81, Article 103369.
Teece, D. J. (1986). Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy. Research Policy, 15(6), 285-305. https://doi.org/10.1016/0048-7333(86)90027-2
Thrane, S., Blaabjerg, S., & Møller, R. H. (2010). Innovative path dependence: Making sense of product and service innovation in path dependent innovation processes. Research Policy, 39(7), 932-944. https://doi.org/10.1016/j.respol.2010.04.003
Umar, M., & Safi, A. (2023). Do green finance and innovation matter for environmental protection? A case of OECD economies. Energy Economics, 119, Article 106560. https://doi.org/10.1016/j.eneco.2023.106560
Wang, H., Masi, D., Dhamotharan, L., Day, S., Kumar, A., Li, T., & Singh, G. (2022). Unconventional path dependence: How adopting product take-back and recycling systems contributes to future eco-innovations Journal of Business Research 142, 707-717. https://doi.org/10.1016/j.jbusres.2021.12.057
Wang, Y., Guo, C.-h., Chen, X.-j., Jia, L.-q., Guo, X.-n., Chen, R.-s., Zhang, M.-s., Chen, Z.-y., & Wang , H.-d. (2021). Carbon peak and carbon neutrality in China: Goals, implementation path and prospects. China Geology, 4(4), 720-746. https://doi.org/10.31035/cg2021083
Wen, H., Zhong, Q., & Lee, C.-C. (2022). Digitalization, competition strategy and corporate innovation: Evidence from Chinese manufacturing listed companies. International Review of Financial Analysis, 82, 102166. https://doi.org/https://doi.org/10.1016/j.irfa.2022.102166
Wenzig, J., Nuzum, A.-K., & Schaltegger, S. (2023). Path dependence of accountants: Why are they not involved in corporate sustainability? Business Strategy and the Environment, 32(6), 2662-2683. https://doi.org/10.1002/bse.3263
Wong, C. Y., Wong, C. W. Y., & Boon-itt, S. (2020). Effects of green supply chain integration and green innovation on environmental and cost performance. International Journal of Production Research, 58(15), 4589-4609. https://doi.org/10.1080/00207543.2020.1756510
Wong, W. K., Cheng, Y., & Yue, M. (2024). Could regression of stationary series be spurious? Asia-Pacific Journal of Operational Research, 2440017.
Wong, W. K., & Pham, M. T. (2022a). Could the test from the standard regression model make significant regression with autoregressive noise become insignificant? The International Journal of Finance, 34, 1-18.
Wong, W. K., & Pham, M. T. (2022b). Could the test from the standard regression model make significant regression with autoregressive noise become insignificant - a note. The International Journal of Finance, 34, 19-39.
Wong, W. K., & Pham, M. T. (2023a). Could the test from the standard regression model make significant regression with autoregressive Yt and Xt become insignificant? The International Journal of Finance, 35, 1-19.
Wong, W. K., & Pham, M. T. (2023b). Could the test from the standard regression model make significant regression with autoregressive Yt and Xt become insignificant - a note. The International Journal of Finance, 35, 20-41.
Wong, W. K., & Pham, M. T. (2025a). Could the correlation of a stationary series with a non-stationary series obtain meaningful outcomes? Annals of Financial Economics, forthcoming.
Wong, W. K., & Pham, M. T. (2025b). How to model a simple stationary series with a non-stationary series? The International Journal of Finance, 37, 1-19.
Wong, W. K., & Pham, M. T. (2026a). Could the panel regression be used to examine the relationship between I(0) and I(1) series? Advances in Decision Sciences, 30(2), forthcoming.
Wong, W. K., & Pham, M. T. (2026b). Could we use correlation to examine panel data with I(0) and I(1) variables? The International Journal of Finance, 38, forthcoming.
Wong, W. K., Pham, M. T., & Yue, M. (2024). Could regressing a stationary series on a non-stationary series obtain meaningful outcomes - a remedy. The International Journal of Finance, 36, 1-20.
Wong, W. K., & Yue, M. (2024). Could regressing a stationary series on a non-stationary series obtain meaningful outcomes? Annals of Financial Economics, 19(03), 2450011.
Xian, C., Gong, C., Lu, F., Wu, H., & Ouyang, Z. (2023). The evaluation of greenhouse gas emissions from sewage treatment with urbanization: Understanding the opportunities and challenges for climate change mitigation in China's low-carbon pilot city, Shenzhen. Science of the Total Environment, 855, Article 158629. https://doi.org/10.1016/j.scitotenv.2022.158629
Xu, Y., Zhao, X., Wang, J., & Xie, P. (2023). Clarifying the dispute of corporate social responsibility: Evidence from green technological innovation. Technology in Society, 75, Article 102392. https://doi.org/10.1016/j.techsoc.2023.102392
Ye, X., & Rasoulinezhad, E. (2023). Rasoulinezhad E. Assessment of impacts of green bonds on renewable energy utilization efficiency. Renewable Energy, 202, 626-633. https://doi.org/10.1016/j.renene.2022.11.124
Zhang, Z., Zhu, H., Zhou, Z., & Zou, K. (2022). How does innovation matter for sustainable performance? Evidence from small and medium-sized enterprises Journal of Business Research, 153, Article 251-265. https://doi.org/10.1016/j.jbusres.2022.08.034
Zhou, D., Lu, Z., & Qiu, Y. (2023). Do carbon emission trading schemes enhance enterprise green innovation efficiency? Evidence from China's listed firms. Journal of Cleaner Production, 414, Article 137668. https://doi.org/10.1016/j.jclepro.2023.137668
Published
Issue
Section
License
Copyright (c) 2026 Umar Farooq (Corresponding Author); Mosab I. Tabash, Ahmad A. Al-Naimi, Sadirdin Khudoykulov, Samariddin Makhmudov, Loona Mohammad Shaheen (Author)
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Scientific and Business World