Does it Really Pay to be Green? Determinants and Consequences of Proactive Environmental Strategies

44 Pages Posted: 10 Aug 2010

See all articles by Peter Clarkson

Peter Clarkson

University of Queensland - Business School; Simon Fraser University (SFU) - Beedie School of Business; Financial Research Network (FIRN)

Yue Li

University of Toronto - Joseph Rotman School of Management

Gordon D. Richardson

University of Toronto - Rotman School of Management

Florin P. Vasvari

London Business School

Date Written: August 9, 2010

Abstract

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 1990-2003 for the four most polluting industries in the U.S. (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.

Keywords: environmental performance, financial performance

Suggested Citation

Clarkson, Peter and Li, Yue and Richardson, Gordon D. and Vasvari, Florin P., Does it Really Pay to be Green? Determinants and Consequences of Proactive Environmental Strategies (August 9, 2010). Journal of Accounting and Public Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1655969

Peter Clarkson

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Yue Li (Contact Author)

University of Toronto - Joseph Rotman School of Management ( email )

Joseph Rotman School of Management
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-978-0857 (Phone)
416-971-3048 (Fax)

Gordon D. Richardson

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-8601 (Phone)
416-971-3048 (Fax)

Florin P. Vasvari

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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