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The product‐market performance benefits of environmental policy: Why customer awareness and firm innovativeness matter

Author

Listed:
  • Mahabubur Rahman

    (ESC [Rennes] - ESC Rennes School of Business)

  • Saqib Aziz

    (ESC [Rennes] - ESC Rennes School of Business)

  • Mathew Hughes

    (Loughborough University)

Abstract

Researchers have widely studied the nexus between corporate environmental ("green") policy and its green performance and firm financial performance, but with mixed findings. A potential explanation for these mixed findings is the focus of extant studies on the direct and immediate impact of environmental performance on financial performance to the exclusion of firm-specific boundary conditions. Furthermore, all prior research study the effect of environmental performance on either stock market-based performance measures (i.e., stock return) or accounting-based performance measures (i.e., return on assets). A missing third dimension of firm performance, product–market-based performance (i.e., market share), has so far remained unexplored despite representing a crucial objective when innovating. Using Newsweek's annual green ranking as a novel measure of environmental performance for a panel of U.S. firms from 2010 to 2015, this paper attempts to fill these voids in the literature. The results show a positive relationship between firms' environmental performance and market share as a measure of product–market-based performance. The findings further demonstrate that this relationship is positively moderated by the level of customer awareness and innovativeness of the firm: The higher the level of awareness of a firm's environmental credentials and innovativeness, the stronger the effects of environmental performance on market share. Our results are robust against endogeneity concerns and alternative measures of firm financial and environmental performance.

Suggested Citation

  • Mahabubur Rahman & Saqib Aziz & Mathew Hughes, 2020. "The product‐market performance benefits of environmental policy: Why customer awareness and firm innovativeness matter," Post-Print hal-03004777, HAL.
    • Handle: RePEc:hal:journl:hal-03004777
    DOI: 10.1002/bse.2484
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    Citations

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    Cited by:

    1. Matthias Filser & Sascha Kraus & Matthias Breier & Ioanna Nenova & Kaisu Puumalainen, 2021. "Business model innovation: Identifying foundations and trajectories," Business Strategy and the Environment, Wiley Blackwell, vol. 30(2), pages 891-907, February.
    2. 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.
    3. Saqib Aziz & Mahabubur Rahman & Dildar Hussain & Duc Nguyen, 2021. "Does corporate environmentalism affect corporate insolvency risk? The role of market power and competitive intensity," Post-Print hal-03344206, HAL.
    4. Indra Overland & Anatoli Bourmistrov & Brigt Dale & Stephanie Irlbacher‐Fox & Javlon Juraev & Eduard Podgaiskii & Florian Stammler & Stella Tsani & Roman Vakulchuk & Emma C. Wilson, 2021. "The Arctic Environmental Responsibility Index: A method to rank heterogenous extractive industry companies for governance purposes," Business Strategy and the Environment, Wiley Blackwell, vol. 30(4), pages 1623-1643, May.
    5. Scholes, Louise & Hughes, Mathew & Wright, Mike & De Massis, Alfredo & Kotlar, Josip, 2021. "Family management and family guardianship: Governance effects on family firm innovation strategy," Journal of Family Business Strategy, Elsevier, vol. 12(4).
    6. Die Hu & Lu Qiu & Maoyan She & Yu Wang, 2021. "Sustaining the sustainable development: How do firms turn government green subsidies into financial performance through green innovation?," Business Strategy and the Environment, Wiley Blackwell, vol. 30(5), pages 2271-2292, July.
    7. Claudia Dias & Ricardo Gouveia Rodrigues & João J. Ferreira, 2021. "Small agricultural businesses' performance—What is the role of dynamic capabilities, entrepreneurial orientation, and environmental sustainability commitment?," Business Strategy and the Environment, Wiley Blackwell, vol. 30(4), pages 1898-1912, May.
    8. Wiśniewska, Agnieszka & Liczmańska-Kopcewicz, Katarzyna & Pypłacz, Paula, 2022. "Antecedents of young adults’ willingness to support brands investing in renewable energy sources," Renewable Energy, Elsevier, vol. 190(C), pages 177-187.
    9. Chen Liu & Dongmin Kong, 2021. "Business strategy and sustainable development: Evidence from China," Business Strategy and the Environment, Wiley Blackwell, vol. 30(1), pages 657-670, January.
    10. Gali, Nazha & Niemand, Thomas & Shaw, Eleanor & Hughes, Mathew & Kraus, Sascha & Brem, Alexander, 2020. "Social entrepreneurship orientation and company success: The mediating role of social performance," Technological Forecasting and Social Change, Elsevier, vol. 160(C).
    11. Taneja, Shilpa & Ali, Liaqat, 2021. "Determinants of customers’ intentions towards environmentally sustainable banking: Testing the structural model," Journal of Retailing and Consumer Services, Elsevier, vol. 59(C).
    12. Aziz, Saqib & Rahman, Mahabubur & Hussain, Dildar & Nguyen, Duc K., 2021. "Does corporate environmentalism affect corporate insolvency risk? The role of market power and competitive intensity," Ecological Economics, Elsevier, vol. 189(C).
    13. Deferne, Marie & Bertschi-Michel, Alexandra & de Groote, Julia, 2023. "The role of trust in family business stakeholder relationships: A systematic literature review," Journal of Family Business Strategy, Elsevier, vol. 14(1).
    14. Jia, Zhijie, 2023. "The hidden benefit: Emission trading scheme and business performance of downstream enterprises," Energy Economics, Elsevier, vol. 117(C).
    15. Gozal Ahmadova & Blanca L. Delgado-Márquez & Javier Aguilera-Caracuel, 2023. "Reporting of environmental policies and internationalization of Asia–Pacific firms: the moderating role of innovation as a source of legitimacy," Asian Business & Management, Palgrave Macmillan, vol. 22(4), pages 1243-1273, September.
    16. Tancredi Pascucci & Giuseppina Maria Cardella & Brizeida Hernàndez-Sànchez & Jose Carlos Sànchez-Garcìa, 2022. "Environmental Sensitivity to Form a Sustainable Entrepreneurial Intention," Sustainability, MDPI, vol. 14(16), pages 1-17, August.
    17. Yueping Du & Huanhuan Wang, 2022. "Green Innovation Sustainability: How Green Market Orientation and Absorptive Capacity Matter?," Sustainability, MDPI, vol. 14(13), pages 1-20, July.
    18. Rahman, Mahabubur, 2023. "The virtuous circle between green product innovation and performance: The role of financial constraint and corporate brand," Journal of Business Research, Elsevier, vol. 154(C).

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