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Environmental management practices and firm financial performance: The moderating effect of industry pollution-related factors

Author

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  • Lucas, Marilyn T.
  • Noordewier, Thomas G.

Abstract

Is the relationship between a firm׳s environmental management practices (EMPs) and its financial performance (FP) dependent on industry pollution-related ("context") characteristics? If so, how? Drawing upon Scott׳s (2004) "dualist" theory of organizations, we propose and test a model that examines the effect of EMPs on firm financial performance both within- and between-industry contexts. In essence, instead of asking "does it pay to be green?" we inquire "what are the circumstances under which it might pay to be green?" Data used to test the hypothesis that industry context matters to the EMP-FP relationship consist of 941 publicly-traded manufacturing U.S. firms, spanning 52 four-digit NAICS codes. The cross-sectional data set includes environmental ratings of firms assigned by Kinder, Lyndenberg, Domini Research and Analytics (KLD), firm-level financial data from Standard & Poor׳s COMPUSTAT database, and industry-level information from the U.S. Census Bureau and the Environmental Protection Agency. Industry "context" is operationalized using measures of industry dirtiness and industry proactiveness. To investigate the influence of both firm- and industry-level variables on firm-level financial performance, we specify a hierarchical (i.e., multilevel) model to test our hypothesis. Among the results, we find that within dirty and non-proactive industries there is a positive marginal effect on firm performance as a result of engaging in EMPs. Moreover, the effect on financial performance of implementing EMPs is greater in relatively dirty and non-proactive industry contexts than in relatively clean and proactive contexts.

Suggested Citation

  • Lucas, Marilyn T. & Noordewier, Thomas G., 2016. "Environmental management practices and firm financial performance: The moderating effect of industry pollution-related factors," International Journal of Production Economics, Elsevier, vol. 175(C), pages 24-34.
    • Handle: RePEc:eee:proeco:v:175:y:2016:i:c:p:24-34
    DOI: 10.1016/j.ijpe.2016.02.003
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    References listed on IDEAS

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