Corporate Environmental Responsibility and Financial Performance Around the World

59 Pages Posted: 26 Sep 2013

See all articles by Hoje Jo

Hoje Jo

Santa Clara University

Hakkon Kim

KAIST College of Business

Bong‐Soo Lee

Florida State University

Kwangwoo Park

KAIST (Korea Advanced Institute of Science and Technology) - College of Business

Date Written: August 20, 2013

Abstract

This paper examines how environmental costs affect the corporate financial performance (CFP) of manufacturing firms around the world. We maintain that by effectively investing in corporate environment responsibility (CER), executives can decrease their firms’ environmental costs, thereby enhancing CFP. We label this argument as the ‘slack resources’ hypothesis. We find that countries in the Asia-Pacific region have the greatest variation between their return on assets (ROA) and environmental cost-adjusted ROA. This comes at the expense of rapid economic development in the emerging economies in the region. We also find that conventional industries such as the basic resources and the food and beverage industries have substantially high levels of total environmental costs, whereas the opposite holds true for the technology and telecommunication industries. Our results suggest that the reduction of environmental costs is related to higher firm performance. We also identify dynamic relations between these two variables. Lowering environmental costs tends to precede the enhancement of ROA by at least two years. Overall, our findings are supportive of the slack resources hypothesis.

Keywords: Corporate Environment Responsibility, Environmental Costs, Financial Performance, Corporate Social Responsibility, Slack Resources Hypothesis

Suggested Citation

Jo, Hoje and Kim, Hakkon and Lee, Bong Soo and Park, Kwangwoo, Corporate Environmental Responsibility and Financial Performance Around the World (August 20, 2013). KAIST College of Business Working Paper Series No. 2013-017. Available at SSRN: https://ssrn.com/abstract=2330040 or http://dx.doi.org/10.2139/ssrn.2330040

Hoje Jo

Santa Clara University ( email )

Santa Clara, CA 95053
United States
408-224-8890 (Phone)
408-554-4029 (Fax)

Hakkon Kim

KAIST College of Business ( email )

Korea, Republic of (South Korea)

Bong Soo Lee

Florida State University ( email )

Tallahasse, FL 32306
United States

Kwangwoo Park (Contact Author)

KAIST (Korea Advanced Institute of Science and Technology) - College of Business ( email )

85 Hoegiro
Seoul 02455
Korea, Republic of (South Korea)
82-2-958-3540 (Phone)
82-2-958-3604 (Fax)

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