Corporate Environmental Responsibility and Firm Performance in the Financial Services Sector

65 Pages Posted: 25 Jul 2014 Last revised: 2 Mar 2018

See all articles by Hoje Jo

Hoje Jo

Santa Clara University

Hakkon Kim

KAIST College of Business

Kwangwoo Park

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

Date Written: June 15, 2014

Abstract

In this study, we examine whether corporate environmental responsibility (CER) plays a role in enhancing operating performance in the financial services sector. Because achieving success with CER investing is often a long-term process, we maintain that by effectively investing in CER, executives can decrease their firms’ environmental costs, thereby enhancing operating performance. By employing a unique environmental data set covering 29 countries, we find that the lowering of environmental costs takes at least one or two years before enhancing return on assets (ROA). We also find that lowering environmental costs has a more immediate and substantial effect on the performance of financial services firms in well-developed financial markets than in less-developed financial markets. These results are economically and statistically significant and robust even after alleviating endogeneity and using an additional performance measure. We interpret our empirical results as supporting the social impact and reputation-building hypothesis. Our findings also suggest that policy makers dealing with corporate sustainability management should pursue an environment-centered industry policy not only at the manufacturing sector but also at the financial services sector, as firms in both sectors with lower environmental costs perform better.

Keywords: Corporate environmental responsibility; Environmental costs; Financial performance; Corporate social responsibility; Environmental sustainability management

Suggested Citation

Jo, Hoje and Kim, Hakkon and Park, Kwangwoo, Corporate Environmental Responsibility and Firm Performance in the Financial Services Sector (June 15, 2014). Journal of Business Ethics, Vol. 131, 2015; KAIST College of Business Working Paper Series No. 2014-007. Available at SSRN: https://ssrn.com/abstract=2470872 or http://dx.doi.org/10.2139/ssrn.2470872

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)

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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