Tracing the Influence of Corporate Environmental Practices on Environmental and Financial Returns

58 Pages Posted: 30 Jun 2017

See all articles by Soyoung Yoo

Soyoung Yoo

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

Jiyong Eom

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

Ingoo Han

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

Date Written: June 01, 2017

Abstract

Despite a recent surge of empirical studies examining associations between corporate environmental performance and financial performance, researchers have been unable to give an integrated account of the mechanisms that link the two. The practical implications of this research stream thus remain limited, offering managers little guidance in their efforts to improve environmental and financial performance. This study of the U.S. chemical industry addresses that gap by analyzing how firms’ environmental management practices and resulting environmental performance may be related to their financial performance, illuminating the type and scope of relevant environmental practices conducted at the plant level of firms. Drawing on detailed environmental information about 18,743 chemical plants and financial information about their 455 parent firms, we investigate the plants’ pollution prevention activities (PPAs) and their broader impacts on environmental performance and financial outcomes in terms of cost competitiveness and market valuation. The results reveal that more-intensive PPAs are associated with both superior environmental performance and improved cost competitiveness, but do not necessarily lead to higher market valuation. The study also establishes that proactive PPAs implemented to improve environmental performance at the plant level are associated with cost competitiveness when those practices directly improve existing production processes and the selected financial measurement is well suited to capture such improvements.

Keywords: Pollution Prevention Activities; Environmental Management; Environmental Performance; Financial Performance; Cost Competitiveness; Chemical Industry.

JEL Classification: M10; M11; M14; M15; Q53; Q55; L65

Suggested Citation

Yoo, Soyoung and Eom, Jiyong and Han, Ingoo, Tracing the Influence of Corporate Environmental Practices on Environmental and Financial Returns (June 01, 2017). KAIST College of Business Working Paper Series No. 2017-010, Available at SSRN: https://ssrn.com/abstract=2995326 or http://dx.doi.org/10.2139/ssrn.2995326

Soyoung Yoo

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

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

Jiyong Eom (Contact Author)

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

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

Ingoo Han

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

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

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