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

Abstract

We hypothesize that firms pursuing a proactive environmental strategy: (1) possess resources and capabilities not available to the other firms and (2) enjoy better financial performance subsequently. Using longitudinal data between 1990 and 2003 from the four most polluting industries in the U.S., we show that firms with superior environmental performance have more resources and enjoy better financial performance subsequently. In contrast, firms with poor relative environmental performance face resource constraints and their financial performance deteriorates further. Our results are consistent with 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 strategy, environmental performance, resource based view theory

JEL Classification: M41, Q20, Q30