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Corporate environmental responsibility and financial performance: does bidirectional causality work? Empirical evidence from the manufacturing industry

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  • Mario Testa
  • Antonio D’Amato

Abstract

Purpose - Over the past two decades, scholarly attention has focused mainly on a direct and inverse relationship between corporate environmental responsibility (CER) and corporate financial performance (CFP). This study aims to explore the bidirectional causality hypothesis, as good environmental results can lead to good financial results, which makes it possible to invest more resources in projects that improve environmental performance. Design/methodology/approach - The authors test the bidirectional causality between CER and CFP on a sample of listed Italian manufacturing firms over the 2005-2014 period. The authors use a fixed effect panel data regression and check the robustness of the results with alternative econometric techniques. Findings - Although the findings do not support bidirectional hypothesis, they establish direction/causality from CFP to CER. As a result, environmental responsibility is a consequence of prior financial performance, which supports the slack resources hypothesis. Research limitations/implications - Given that companies’ environmental commitment is dictated by economic evaluations or by assessing the availability of resources to invest, it seems that the spread of environmentally responsible behaviours might be supported by different external pressures. Originality/value - The paper provides further insights on sustainability management literature by establishing a bidirectional relationship between firm performance and environmental responsibility.

Suggested Citation

  • Mario Testa & Antonio D’Amato, 2017. "Corporate environmental responsibility and financial performance: does bidirectional causality work? Empirical evidence from the manufacturing industry," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 13(2), pages 221-234, June.
    • Handle: RePEc:eme:srjpps:srj-02-2016-0031
    DOI: 10.1108/SRJ-02-2016-0031
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    Cited by:

    1. Pasquale Ruggiero & Sebastiano Cupertino, 2018. "CSR Strategic Approach, Financial Resources and Corporate Social Performance: The Mediating Effect of Innovation," Sustainability, MDPI, vol. 10(10), pages 1-22, October.
    2. Lin Zhang & Xiaochen Zhang & Jingjing An & Wei Zhang & Jingshen Yao, 2022. "Examining the Role of Stakeholder-Oriented Corporate Governance in Achieving Sustainable Development: Evidence from the SME CSR in the Context of China," Sustainability, MDPI, vol. 14(13), pages 1-22, July.
    3. Cemal Zehir & Burcu Ozgul, 2020. "Environmental orientation and firm performance: The mediation mechanism of green innovation," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 9(5), pages 13-25, September.
    4. Hail Jung & Seyeong Song & Chang-Keun Song, 2021. "Carbon Emission Regulation, Green Boards, and Corporate Environmental Responsibility," Sustainability, MDPI, vol. 13(8), pages 1-12, April.
    5. Feng-Li Lin, 2021. "R&D Investment, Financial and Environmental Performance Nexuses via Bootstrap Fourier Quantiles Granger Causality Test," Economies, MDPI, vol. 9(2), pages 1-11, May.
    6. Benhong Peng & Yu Tu & Guo Wei, 2018. "Can Environmental Regulations Promote Corporate Environmental Responsibility? Evidence from the Moderated Mediating Effect Model and an Empirical Study in China," Sustainability, MDPI, vol. 10(3), pages 1-16, February.
    7. Francoeur, Claude & Lakhal, Faten & Gaaya, Safa & Ben Saad, Itidel, 2021. "How do powerful CEOs influence corporate environmental performance?," Economic Modelling, Elsevier, vol. 94(C), pages 121-129.
    8. Carlos Lassala & Andreea Apetrei & Juan Sapena, 2017. "Sustainability Matter and Financial Performance of Companies," Sustainability, MDPI, vol. 9(9), pages 1-16, August.
    9. Marcello Risitano & Rosaria Romano & Vincenzo Rusciano & Gennaro Civero & Debora Scarpato, 2022. "The impact of sustainability on marketing strategy and business performance: The case of Italian fisheries," Business Strategy and the Environment, Wiley Blackwell, vol. 31(4), pages 1538-1551, May.
    10. Burcu Özgül & Cemal Zehir, 2023. "How Managers’ Green Transformational Leadership Affects a Firm’s Environmental Strategy, Green Innovation, and Performance: The Moderating Impact of Differentiation Strategy," Sustainability, MDPI, vol. 15(4), pages 1-20, February.
    11. Sini Laari & Tomi Solakivi & Anu Bask & Juuso Töyli & Lauri Ojala, 2021. "Unravelling Mickey Mouse: The Effect of Supply Chain Position and Organisational Slack on the Uneven Balance of Sustainability Dimensions," Sustainability, MDPI, vol. 13(24), pages 1-16, December.
    12. Mei-Chee Tan & Tuan-Hock Ng & Ying-San Lim & Chun-Teck Lye & Hishamuddin Ismail, 2018. "Modeling the Impacts of Corporate Environmental Responsibility on Information and Communication Technology -waste Management," International Journal of Energy Economics and Policy, Econjournals, vol. 8(4), pages 347-355.
    13. Claude Francoeur & Faten Lakhal & Safa Gaaya & Itidel Ben Saad, 2021. "How do powerful CEOs influence corporate environmental performance?," Post-Print hal-02976839, HAL.
    14. Shaymaa Al-Said Salem & Dina Elkhattat, 2023. "Environmental Responsibility of the Banking Sector in UAE: Practices to Confront Climate Change Risks," Scientia Moralitas Conference Proceedings 01256, Research Association for Interdisciplinary Studies.
    15. Rintala, Oskari & Laari, Sini & Solakivi, Tomi & Töyli, Juuso & Nikulainen, Reetta & Ojala, Lauri, 2022. "Revisiting the relationship between environmental and financial performance: The moderating role of ambidexterity in logistics," International Journal of Production Economics, Elsevier, vol. 248(C).
    16. Agata Pierscieniak & Izabela Krawczyk-Sokolowska & Wieslawa Caputa, 2023. "Micro-foundations of environmental entrepreneurship resistance in SMEs," International Entrepreneurship and Management Journal, Springer, vol. 19(1), pages 71-95, March.
    17. Juan Pineiro-Chousa & Noelia Romero-Castro & Marcos Vizcaíno-González, 2019. "Inclusions in and Exclusions from the S&P 500 Environmental and Socially Responsible Index: A Fuzzy-Set Qualitative Comparative Analysis," Sustainability, MDPI, vol. 11(4), pages 1-31, February.
    18. Yue Liu & Pierre Failler & Liming Chen, 2021. "Can Mandatory Disclosure Policies Promote Corporate Environmental Responsibility?—Quasi-Natural Experimental Research on China," IJERPH, MDPI, vol. 18(11), pages 1-19, June.
    19. Ajay Kumar & Jyotirani Gupta & Niladri Das, 2022. "Revisiting the influence of corporate sustainability practices on corporate financial performance: An evidence from the global energy sector," Business Strategy and the Environment, Wiley Blackwell, vol. 31(7), pages 3231-3253, November.

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