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Empirical Evidence on Environmental Performance and Operating Costs

Author

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  • Christian Dreyer

    (Finance Center Muenster, University of Muenster, Universitaetsstr, 14–16, 48143 Muenster, Germany)

  • Nadja Guenster

    (Finance Center Muenster, University of Muenster, Universitaetsstr, 14–16, 48143 Muenster, Germany)

  • Jakob Koegst

    (Finance Center Muenster, University of Muenster, Universitaetsstr, 14–16, 48143 Muenster, Germany)

Abstract

Theoretical arguments suggest that better environmental performance can lead to cost advantages through a more efficient use of resources and higher labor productivity. To provide empirical support for these arguments, we investigate how environmental performance affects operating costs using a sample of 785 U.S. firms for the period 2006–2014. We find that better environmental performance is negatively associated with direct production costs, but increases overhead costs. Because direct production costs have a larger impact than overhead costs, aggregate operating costs decline as environmental performance improves. To deal with endogeneity and to interpret the results causally, we use an instrumental variables approach.

Suggested Citation

  • Christian Dreyer & Nadja Guenster & Jakob Koegst, 2019. "Empirical Evidence on Environmental Performance and Operating Costs," Sustainability, MDPI, vol. 11(13), pages 1-13, June.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:13:p:3600-:d:244366
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