Does it really pay to be green? Determinants and consequences of proactive environmental strategies

This study examines what factors affect firms’ decisions to adopt a proactive environmental strategy and whether pursuing proactive environmental strategies leads to improved financial performance. Using longitudinal data from 1990 to 2003 for the four most polluting industries in the US (Pulp &...

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Bibliographic Details
Published in:Journal of accounting and public policy 2011-03, Vol.30 (2), p.122-144
Main Authors: Clarkson, Peter M., Li, Yue, Richardson, Gordon D., Vasvari, Florin P.
Format: Article
Language:English
Subjects:
Business management
Causal analysis
Causality
Determinants
Environmental effects
Environmental management
Environmental protection
Financial management
Financial performance
Strategic planning
Studies
U.S.A
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Summary:This study examines what factors affect firms’ decisions to adopt a proactive environmental strategy and whether pursuing proactive environmental strategies leads to improved financial performance. Using longitudinal data from 1990 to 2003 for the four most polluting industries in the US (Pulp & Paper, Chemical, Oil & Gas, and Metals & Mining), this research empirically models the causal relations between firms’ environmental performance and their financial resources and management capability. Our results show that positive (negative) changes in firms’ financial resources in the prior periods are followed by significant improvements (declines) in firm’s relative environmental performance in the subsequent periods. In addition, we also find that significant improvements (declines) in environmental performance in the prior periods can lead to improvements (declines) in financial performance in the subsequent periods after controlling for the impact of Granger causality. Finally, 3SLS analysis suggests that the positive association between environmental performance and financial performance is robust. Overall, our results are consistent with predictions of the resource-based view of the firm and indicate that although becoming “green” is associated with improvement in firm performance, such a strategy cannot be easily mimicked by all firms.
ISSN:0278-4254
1873-2070
DOI:10.1016/j.jaccpubpol.2010.09.013