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Revisiting the association between environmental performance and financial performance: Does the level of environmental orientation matter?

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  • Ammar Ali Gull
  • Asif Saeed
  • Muhammad Tahir Suleman
  • Rizwan Mushtaq

Abstract

In this study, we re‐examine the nexus of environmental performance and financial performance by benchmarking firms relative to their industry peers based on environmental performance in a given year to identify best‐in‐class and worst‐in‐class firms. After correcting for distributional issues while using environmental performance scores (i.e., clustering scores around the median and material differences within industries and time) and financial performance ratios (i.e., the potential impact of extreme values), we find that best‐in‐class firms exhibit higher financial performance than their industry peers (i.e., worst‐in‐class and average firms). Our findings are robust to alternative measures of environmental performance (i.e., subdimensions of environmental performance) and financial performance. Finally, our results are robust to different identification strategies. Our findings present important and timely policy implications for firms, ESG fund managers and investors.

Suggested Citation

  • Ammar Ali Gull & Asif Saeed & Muhammad Tahir Suleman & Rizwan Mushtaq, 2022. "Revisiting the association between environmental performance and financial performance: Does the level of environmental orientation matter?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(5), pages 1647-1662, September.
    • Handle: RePEc:wly:corsem:v:29:y:2022:i:5:p:1647-1662
    DOI: 10.1002/csr.2310
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    2. Wu, Zihao & Lin, Siliang & Chen, Tianhao & Luo, Chunyang & Xu, Hui, 2023. "Does effective corporate governance mitigate the negative effect of ESG controversies on firm value?," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1772-1793.
    3. David Aristei & Manuela Gallo, 2024. "Green management, access to credit, and firms’ vulnerability to the COVID-19 crisis," Small Business Economics, Springer, vol. 62(1), pages 179-211, January.
    4. Saeed, Asif & Zafar, Muhammad Wasif & Manita, Riadh & Zahid, Noor, 2024. "The role of audit quality in waste management behavior," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1203-1216.
    5. Perdichizzi, Salvatore & Buchetti, Bruno & Cicchiello, Antonella Francesca & Dal Maso, Lorenzo, 2024. "Carbon emission and firms’ value: Evidence from Europe," Energy Economics, Elsevier, vol. 131(C).

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