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An Empirical Investigation of Environmental Performance and the Market Value of the Firm
Abstract
This paper analyzes the shareholder value effects of environmental performance by measuring the stock market reaction associated with announcements of environmental performance. We examine the market reaction to two categories of environmental performance. The first category includes 417 announcements of Corporate Environmental Initiatives (CEIs) that provide information about self-reported corporate efforts to avoid, mitigate, or offset the environmental impacts of the firm's products, services, or processes. The second category includes 363 announcements of Environmental Awards and Certifications (EACs) that provide information about recognition granted by third-parties specifically for environmental performance. Although the market does not react significantly to the aggregated CEI and EAC announcements, we find statistically significant market reactions for certain CEI and EAC subcategories. Specifically, announcements of philanthropic gifts for environmental causes are associated with significant positive market reaction, voluntary emission reductions are associated with significant negative market reaction, and ISO 14001 certifications are associated with significant positive market reaction. The difference between the market reactions to the CEI and EAC categories is statistically insignificant. Overall, the market is selective in reacting to announcements of environmental performance with certain types of announcements even valued negatively.
... We used the daily stock data to calculate abnormal returns, which allowed for estimating the percentage change in stock prices associated with an event after adjusting them in accordance with market-wide movements (Sorescu et al. 2017). Following the general approach to conducting short-term event studies (Jacobs et al. 2010), we used calendar days as event days and day 0 as the date when the reshoring announcement was made (before market closing time). Then, we presented a three-day event period and examined the daily effect of all reshoring announcements on abnormal returns from day �1 to day 1. 11 Following previous studies (McWilliams andSiegel 1997, Wood et al. 2017), we used a two-day event period that includes both announcement day (day 0) and the trading day after the announcement (day 1) to ensure sufficient time for market response, particularly if announcements were made near market closure. ...
... 12 We also used a 200-day estimation period (from day �210 to day �11) to compute the expected return for each firm. We eliminated firms with less than 40 days of stock price data to ensure accuracy (Jacobs et al. 2010). To protect the estimate against the effects of the announcement and ensure nonstationarity, we ended the estimation period 11 trading days before the event day (Jacobs et al. 2010). ...
... We eliminated firms with less than 40 days of stock price data to ensure accuracy (Jacobs et al. 2010). To protect the estimate against the effects of the announcement and ensure nonstationarity, we ended the estimation period 11 trading days before the event day (Jacobs et al. 2010). The difference between the expected and actual return is the abnormal return for firm i on day t. ...
With soaring labor and logistics costs in developing countries, supply chain disruptions during the COVID-19 pandemic triggered Western firms to “reshore” some of their offshore operations (performed in-house or outsourced) for certain strategically important products or production processes from foreign countries to their home countries. Although reshoring can create more domestic jobs and reduce supply chain risks, the impact of various external and internal risks associated with reshoring on market reaction remains unclear. This observation motivates us first to conduct a text mining analysis, revealing four important types of reshoring risks inherent to (1) foreign currency fluctuation, (2) intellectual property (IP) protection, (3) reshoring types (in-house, insourced, or outsourcing-to-outsourcing (OTO)), and (4) reshoring location choice (Republican- versus Democrat-led states). We then examine how these risk factors help explain the variations in reshoring’s market valuation based on 281 reshoring initiatives of 132 publicly traded firms in the United States announced between 2009 and 2022. Our empirical analysis reveals that the market reacts more positively to a firm’s reshoring announcement when the firm reshores under a high-currency-fluctuation environment or from countries with weak IP protection. However, the market’s reaction is more negative when the firm’s reshoring announcement entails insourced reshoring operations or when the reshored location is a Democrat- rather than Republican-led state. We do not find a significant market reaction to OTO reshoring.
This paper was accepted by Vishal Gaur, operations management.
Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.00599 .
... Isu mengenai kinerja lingkungan perusahaan terhadap shareholder value telah menjadi isu yang menarik bagi para peneliti beberapa tahun belakang dan semakin berkembang dari tahun ke tahun (Banerjee et al., 2019;Endrikat, 2016;Muhammad et al., 2015;Porter & Linde, 1995;Williamson et al., 2006). Investor menganggap pengumuman atas kinerja lingkungan sebagai hal positif, mengarah pada peningkatan abnormal return (Yadav et al., 2016) investor lebih konsisten bereaksi pada informasi buruk terkait kinerja lingkungan perusahaan (Jacobs et al., 2010;Lorraine et al., 2004). Kinerja lingkungan perusahaan memberikan dampak positif dan signifikan pada reputasi perusahaan (Khanifah et al., 2020). ...
... Berbagai pengukuran atas kinerja lingkungan telah digunakan pada penelitian terdahulu, seperti sertifikat ISO 14000:1 (Jacobs et al., 2010), indeks yang dikeluarkan oleh Swedish Firm, Caring Company (CC) Research (Hassel et al., 2005), Dow Jones Sustainability Index (DJSI) (Robinson et al., 2011); partisipasi perusahaan dalam USEPA Climate Leaders Program (Keele & DeHart, 2011); dan KLD STATS (Fisher-Vanden & Thorburn, 2011). Penelitian-penelitian tersebut menggunakan informasi yang dihasilkan oleh pihak ketiga yang dianggap lebih independen dan objektif dibandingkan dengan pengungkapan sukarela oleh pihak manajemen internal. ...
Studi ini bertujuan untuk mengukur keberpengaruhan apakah pengungkapan sukarela dan kinerja lingkungan dapat mempengaruhi shareholder value. Peningkatan kinerja lingkungan diharapkan dapat memberikan akses pada pasar-pasar baru (Jacobs et al., 2010), terutama di masa krisis ekonomi dampak pandemi COVID-19. Kinerja pengelolaan lingkungan perusahaan diharapkan dapat menjadi informasi tambahan yang positif sehingga mempengaruhi shareholder value untuk menggairahkan pasar modal di masa pandemi COVID-19. Kinerja lingkungan perusahaan terhadap shareholder value berkembang menjadi daya tarik bagi para peneliti beberapa tahun belakang dan semakin berkembang dari tahun ke tahun (Banerjee et al., 2019). Sayangnya, penelitian terdahuli hanya menguji hubungan tersebut dalam kondisi perekonomian normal. Maka dari itu, peneliti bermaksud untuk menelaah apakah dampak kinerja lingkungan terhadap penilaian investor di masa krisis ekonomi dampak pandemi COVID-19 di Indonesia. Kinerja lingkungan pada penelitian ini diproksikan menggunakan dua ukuran dari pihak manajemen (internal) yaitu informasi laporan keberlanjutan(sustainability report) dan pihak independen eksternal yaitu peringkat PROPER kinerja lingkungan perusahaan. Shareholder value yang merupakan variabel dependen yang dibangun dalam studi penelitian ini menggunakan pengukuran Tobin’s Q.
... However, in recent years, some literature has analyzed the effects of emission reduction on consumers' heterogeneous preferences under the impact of policy shocks. The logic is that as higher environmental standards are implemented and consumers shift to environmentally friendly products, manufacturers tend to produce low-carbon products and take measures to suppress carbon emissions [43,44]. For example, Ji et al. [45] construct a Stackelberg model that incorporates supply chain, cap-and-trade regulation and consumers' low-carbon preferences and find that manufacturers and retailers may accept a cap-and-trade mechanism when consumers have low-carbon solid preferences. ...
... Higher elasticity of substitution and non-homothetic preferences allow more and more producers to commit to desiring and innovating energy-efficient products in response to positive carbon tax shocks, thereby increasing the technological efficiency of abatement efforts and ultimately reducing carbon emissions. Although producers need to weigh the costs and benefits of shifting to cleaner production, when consumers have high preferences for low carbon, producers will move away from short-term interest to a sustainable business model [43]. Thus, the nonhomothetic preferences of representative households for low-carbon new energy products are a crucial mechanism through which carbon pricing policies work and exacerbate the degree of responsiveness of non-production-side economic variables. ...
Along with the new stage of prevention and control of the COVID-19 pandemic and the vision and goals of combatting climate change, the challenges of the transition to a green economy have become more severe. The need for green recovery of the economy, stability and security of energy production and consumption, and the coordination of low-carbon transformation and socio-economic development has become increasingly urgent. This paper proposes a new theoretical framework to study the effect of carbon emission reduction on the mutual application of the carbon market, fiscal policy and monetary policy under the non-homothetic preference of energy product consumption. By constructing an environmental dynamic stochastic general equilibrium (E-DSGE) model with residents’ non-homothetic preferences, this paper finds that coordinating the carbon market and macroeconomic policies can achieve economic and environmental goals. However, the transmission paths for each are different. The carbon market influences producers’ abatement efforts and costs through carbon prices. Monetary policy controls carbon emissions by adjusting interest rates, while fiscal policy controls carbon emissions by adjusting total social demand. Improving non-homothetic preferences will amplify business cycle fluctuations caused by exogenous shocks, thus assuming the role of a “financial accelerator”. Further research shows that non-homothetic preferences influence the heterogeneity of different policy mixes. Finally, this paper discovers that the welfare effects, the relative size and difference of long-term and short-term effects resulting from the different policy mixes, also depend on the level of non-homothetic preferences. The intertemporal substitution mechanism due to the improvement of non-homothetic preferences endows low-carbon production with “option” characteristics. Our study reveals the role of non-homothetic preferences on the effectiveness of policy implementation. It highlights the importance of matching monetary and fiscal policies with the carbon market based on the consumption and production side. It provides ideas for policy practice to achieve the goal of “dual carbon” and promoting coordinated socio-economic development.
... The estimation period ends two weeks in advance to ensure that the estimation is not affected by the announcement. Finally, in the estimation period, the company must have at least 40 observations (Jacobs et al., 2010). In addition, to test the significance of the abnormal rate of return, we use a one-sample T-test to test the significance of the mean abnormal rate (MAR) of return; Wilcoxon signed rank test is used to test whether the median abnormal return is significantly less than 0. On the other hand, the binomial sign test is used to test whether the e positive rate of the abnormal returns (PRAR) is significantly higher by 50%. ...
... Referring to previous study (Jacobs et al., 2010;Raassens et al., 2012;Rahman et al., 2020), excluding relevance of content, non-first-time releases, missing data, and consecutive announcements with an interval of fewer than five days, the final sample included 168 related announcements from 88 listed companies, among them, 46 companies have released multiple digital technology innovation announcements for social responsibility belong to different types of technologies. It focuses on China's corporate stock market research, which has been motivated by two reasons: On the one side, in recent years, China has paid considerable attention to the social responsibility of platform enterprises. ...
Purpose
Considering rapid digitalization development, this study examines the impacts of digital technology innovation on social responsibility in platform enterprises.
Design/methodology/approach
The study applies the event study method and cross-sectional regression analysis, taking 168 digital technology innovations for social responsibility issued by 88 listed platform enterprises from 2011 to 2022 to study the impact of digital technology innovations for social responsibility announcements of different announcement content and platform attributes on the stock market value of platform enterprises.
Findings
The results show that, first, the positive stock market reaction is produced on the same day as the digital technology innovation announcement. Second, the announcement of the platform’s public social responsibility and the announcement of co-innovation and radical innovation bring more positive stock market reactions. In addition, the announcements mentioned above issued by trading platforms bring more positive stock market reactions. Finally, the social responsibility attribution characteristics of the announcement did not have a significant differentiated impact on the stock market reaction.
Originality/value
Most scholars have studied digital technology innovation for social responsibility through modeling rather than second-hand data to empirically examine. This study uses second-hand data with the instrumental stakeholder theory to provide a new research perspective on platform social responsibility. In addition, in order to explore the different impacts of digital technology innovation on social responsibility, this study has classified digital technology innovation for social responsibility according to its social responsibility and digital technology innovation characteristics.
... Following similar studies (Arya & Zhang, 2009;Jacobs et al., 2010), this project used the event study method. This is based on the assumption that, the new information introduced to the market will provoke an immediate reaction from investors. ...
... In accordance with most event studies, the "market model" was used to estimate abnormal returns (Jacobs et al., 2010). This model postulates a linear relationship between the performance of a stock and the performance of the market (that is, the performance of the market portfolio) over a given period of time as: ...
This research project intends to analyze the financial effects caused by the implementation of Corporate Social Responsibility (CSR) in companies, and the shareholders’ perspective regarding the disclosure of these practices in the stock market. The Colombian Stock Exchange (BVC) market’s reaction was studied, using as a reference 20 companies included in the COLCAP index. The influence of this CSR-type announcements published in important local newspapers was analyzed. The results show that the social practices developed by the Colombian companies listed on the BVC have a positive relationship with financial performance; this fact is evidenced by the change in the share price.
... Corporate climate initiatives facilitate access to new markets (Jacobs et al. 2010) and investment opportunities (Eccles et al. 2014). As the demand for green technologies and sustainable products grows, companies that adopt these technologies and products early can tap into emerging markets. ...
We overview the role of business in climate change and apply this to Oregon as part of Oregon's seventh climate assessment.
... The relationship between corporate environmental performance and its impact on shareholder value has garnered increasing attention from researchers in recent years [3], [4], [5], [6], [7]. Investors view announcements of environmental performance positively, leading to abnormal returns [8], while they often respond consistently to unfavorable information regarding corporate environmental performance [9], [10]. Environmental performance positively and significantly influences corporate reputation [11]. ...
... This effect is particularly pronounced in traditionally polluting industries. Jacobs et al. (2010) study delves into market reactions to different environmental outcome categories, revealing that the market exhibits selectivity in its response. Interestingly, certain environmental outcome announcements are even valued negatively, underlining the nuanced nature of market perception in this context. ...
This research investigates the impact of Environmental, Social, and Governance (ESG) outcomes on the market valuation of companies in OECD nations, emphasizing the growing importance of sustainability in developed economies. Motivated by gaps in the existing literature, the study hypothesizes that ESG practices positively influence market valuation, mediated by financial performance indicators such as profitability and operational capability. Using a fixed effect model and a dataset of 1758 firms spanning 2011–2022, the analysis assesses both the direct and indirect effects of ESG performance on market valuation. The findings reveal that improved ESG performance significantly enhances market valuation and positively impacts profitability and operational capability. However, the mediating roles of these financial metrics indicate a nuanced relationship, with partial mediation effects observed. The study concludes that robust ESG strategies not only enhance market value but also contribute to operational effectiveness, offering actionable insights for policymakers, business leaders, and investors. These results underscore the critical role of ESG initiatives in fostering sustainable development and economic growth within OECD countries.
... Being more transparent leads to better consumer perception, stronger social connections and improved employee morale (Jacobs et al., 2010). All these factors help firms achieve better financial performance by following environmental disclosure practices. ...
Abstract
Purpose
This study aims to investigate the impact of corporate climate change disclosure (CCD) on the financial performance of Indian firms.
Design/methodology/approach
The study is grounded in the principles of signalling theory, legitimacy theory and the cost-benefit analysis approach. The sample for the study includes 77 Indian firms from 2018–2019 to 2021–2022. Required data are collected from published annual reports, sustainability reports and the Ace Equity Database. The explanatory variable CCD is measured using content analysis based on the Task Force on Climate-related Financial Disclosures (TCFD) framework. The panel fixed-effects or random-effects models have been considered for hypotheses testing.
Findings
The disclosure level of CCD and its different components is found to be moderate with an average score of 0.364 among top Indian firms. Regression results reveal a significant positive association between CCD on firms’ market-based performance, suggesting its long-term benefits. Besides, additional analysis indicates the differential impact of CCD on financial performance based on firms’ CEO duality status, industry affiliation and pre-COVID and post-COVID period, thus establishing their moderating role in the observed relationship.
Practical implications
The study highlights the necessity of enhancing climate-related disclosure by Indian firms and strategically leveraging the same to boost their financial performance.
Originality/value
Few studies have examined the implications of CCD (based on the TCFD framework) on firm performance. Moreover, exploring the moderating role of CEO duality, industry type and COVID-19 in the CCD and firm performance relationship is a novel empirical contribution.
... Environmental performance has a significant impact on corporate sustainability and investment decisions. Most current research focuses on the impact of environmental performance from perspectives such as green innovation (Ma et al., 2024;Wang et al., 2022), environmental information disclosure (Ingram and Frazier, 1980;Clarkson et al., 2008;Meng et al., 2014), dividend policy , risk-taking (Qiu et al., 2024) and firm value (Jacobs et al., 2010;Harahap et al., 2019;Aydoğmuş et al., 2022). For companies and stakeholders, however, the primary concern is whether environmental investments can bring economic benefits. ...
This study uses data from listed companies in China from 2008 to 2021, constructs a comprehensive evaluation of corporate environmental performance from the perspective of internal efficiency and externalities based on the text analysis method, and analyzes the impact and mechanism of environmental performance on profitability. In addition, we find that improving environmental performance can significantly increase profitability, especially if the company tackles pollution at the source. Furthermore, the impact of environmental performance on profitability tends to be driven by external markets. Obtaining environmental certifications, awards, and green patents can provide positive feedback and significantly increase profitability. In addition, the mechanism analysis shows that environmental performance affects firm profitability by improving green technology innovation, reducing financing constraints and increasing operating income. Finally, the results of the heterogeneity analysis show that the profitability-enhancing effect of environmental performance is stronger in non-state-owned firms, in clean industries firms and in regions with carbon emission trading.
... As a result, the environmental impacts of making and using items have a considerable impact on consumers' purchasing decisions (Banerjee, 2002;Barbarossa & De Pelsmacker, 2016;Sama et al., 2018;Takahashi, 2021). Climate-conscious strategies might also help businesses reach out to younger consumers who are more environmentally conscious (such as millennials) (Baker & Sinkula, 2005;Jacobs et al., 2010;Martín-de Castro et al., 2016) in order to boost growth and future earnings. If a firm establishes its reputation as an ecofriendly brand or firm, it may be able to diversify into other product categories, reducing the risk associated with the product category. ...
This study aims to examine the impact of the net-zero policy on forward default risk at the firm level within the energy sector of the US, spanning over the period 2007-2021. The research employs Panel Vector Autoregression (PVAR) modeling, as well as linear and non-linear Autoregressive Distributed Lag (ARDL) models to investigate this relationship. The findings suggest that the implementation of net-zero policy measures can have complex effects on firms' default risk in both the short and long run. The PVAR results confirm a unidirectional negative impact of net-zero policies on forward default risk over 2, 3, and 5 years. The symmetric ARDL model results show a negative long-run impact on the future probability of default, with short-run impacts being positive across all time horizons. The asymmetric ARDL model findings indicate that positive net-zero measures reduce the probability of default in the long run and increase it in the short run across all time horizons. Conversely, negative shocks of net-zero measures lead to an increase in the forward probability of default in the long run. The differences in findings between the long and short run are attributed to the effects of capital expenditures on infrastructure expenses required to achieve net-zero results. This study contributes to the literature on financial outcomes and the impact of adopting sustainable development and net-zero goals. The policy implications suggest that a supportive institutional framework must be provided to reduce the financial default in energy sector firms, which will assist in capital and infrastructure expenditures in the short run.
... The payoffs of ESGP were not able to exceed their costs. Many found that firms engaging in ESGP improvement experienced non-positive abnormal share returns (Jacobs et al., 2010) and lower market valuation in comparison to entities which did not consider ESG at all (Marsat & Williams, 2014). Crisóstomo et al. (2011) added that ESGP requires the allocation of resources move from the shareholders to other company stakeholders, therefore, it is natural to expect ESGP to be penalised by the market as such is not a rational corporate action. ...
Theoretical background: The paper draws on two relevant theories – stakeholder theory and institutional theory. Non-financial information on how the operations of a company impact its surroundings in environmental, social, and governance (ESG) areas is more and more important in terms of firm value and according to stakeholders theory, a positive relationship between these two is expected. However, although the research on the relationship between company ESG performance (ESGP) and firm value origins since the beginning of the 1970s, the authors document no conclusive results. The above is theorised to be conditioned by the role of institutions as they reflect a rational purpose that guides behaviours of entities toward certain ends.
Purpose of the article: Two aims were set in the study. First, to examine the impact of the sustainability level of the European Union (EU) Member States in the years 2012–2021 on ESGP of non-financial sectors stock companies. The second aim of the paper was to assess the country sustainability level as the factor differentiating the nature and the strength of ESGP impact on firm value of non-financial sectors stock companies listed on the regulated financial markets of EU Member States in the years 2012–2021.
Research methods: For the purpose of achieving set goals, the study utilised two econometric models. Models were estimated using Panel Least Squares (PLS) regression with Fixed Effects (FE). Tobin’s Q proxied firm value, ESG scoring from Refinitiv proxied company ESGP. Global Sustainability Competitiveness Index (GSCI) from Solability was used as the measure of country sustainability. Company financial and ESG data was sourced from Refinitiv EIKON, while country data was accessed from Solability, Eurostat, Human Development Index and Transparency International.
Main findings: Countries of both low and high sustainability level impact company ESGP positively. However, almost twice as big influence of highly sustainable countries was noted for low ones. Research results documented ESG to impact firm value positively. An increase in ESG score of a company from the country with low sustainability level decreased its firm value and the opposite was noted in case of companies of countries with high sustainability level. Investors tend to value positively companies with good ESGP and strong nation-level institutions in the field of sustainability and to punish (i.e. with a lower valuation) firms from countries of poor sustainability, even if these entities reached unexceptionally good ESGP.
... Other studies reported all impacts when considering different variables, e.g., Boiral et al. (2018) studied the effect of ISO on organisational performance, and found that the impact of ISO 14001 is three folds "negative effect on company value" (33%), "low impact on margins" (17%) and "positive impact on financial results" (50%). Jacobs et al. (2010) argued that ISO 14001 could improve financial performance resulting in a better reputation. ...
The impact of the certification on financial performance is still a debated issue. While a number of research studies have highlighted the importance of the environmental management system in achieving environmental performance, there is a theoretical gap concerning the way in which the environmental management system affects the financial performance of companies. This paper aims to fill the identified gap on how ISO 14001 adoption affects companies' financial performance, and the moderating factors likely to influence this link. To address the research question, a systematic literature review was carried out over the last decade of the main studies on this issue published in peer‐reviewed journals between 2004 and 2024. The analysis of the 57 articles in our sample provides a comprehensive picture of the impact of ISO 14001 on financial performance. The results of this research highlight the factors that influence the relationship between financial performance and ISO 14001 certification and suggest that endogenous and exogenous factors should be taken into account in order to understand this complex link.
... In summary, green behavior brings both environmental and economic benefits to enterprises, and good environmental performance can help enterprises reduce the consumption of raw materials, energy and labor, reduce the cost of environmental governance and penalties for violations of law, which is more conducive to improving the economic benefits of the enterprise (Jacobs, Singhal, & Subramanian, 2010;Zelong Wei, Shen, Zhou, & Li, 2017).Accordingly, this paper proposes the following hypotheses: ...
... In summary, green behavior brings both environmental and economic benefits to enterprises, and good environmental performance can help enterprises reduce the consumption of raw materials, energy and labor, reduce the cost of environmental governance and penalties for violations of law, which is more conducive to improving the economic benefits of the enterprise (Jacobs, Singhal, & Subramanian, 2010;Zelong Wei, Shen, Zhou, & Li, 2017).Accordingly, this paper proposes the following hypotheses: ...
... As Jacobs et al. 85 and Shahbaz et al. 86,87 posit, one problem may arise during the estimation process is the endogeneity issue between environmental quality and digital finance. The presence of endogeneity may render traditional estimation techniques unreliable and inefficient. ...
Objectives
This paper investigates the role of digital finance in promoting environmental sustainability within a group of 52 developing economies from 2010 to 2019. Specifically, it examines whether digital finance effectively contributes reducing CO2 emissions in these nations.
Methods
This paper is a quantitative study which employs the IV-GMM (instrumental variable generalized methods of moment) approach that tackles any potential endogeneity. Furthermore, to ensure robustness of results, this paper also utilizes different measures of financial development.
Results
Estimation results from this study reveal the presence of inverted U-shaped relationship between digital finance and CO2 emissions. This suggests that the beneficial effects of digital finance may take time to materialize. Additionally, this research also records the presence of the Environmental Kuznets Curve and a significant impact of renewable energy, trade openness, financial development, urbanization, and population on CO2 emissions.
Conclusions
It can be concluded that it may take time for digital finance to become beneficial to the environment. Therefore, in addition to digital finance, countries should also adopt other measures simultaneously (use of renewable energy, combination between digital finance and financial development).
... It is based on the assumption that any effects will be quickly reflected in changes in prices shortly after the event (Liu et al., 2020). This method has been commonly used to study the effect of environmental measures on stock prices, with an emphasis on market reactions to environmental behaviors and policies (Klassen and McLaughlin, 1996 ;Jacobs et al., 2010). Recent research has also focused on market responses to the implementation of environmental policies (Chen et al., 2021;Li et al., 2021;He and Liu, 2018) and has found that capital markets tend to react differently to different types of policies. ...
This paper study the impact of the European Central Bank's (ECB) climate related speeches on European stock markets. Using the database of 2594 speeches between 1997 and 2022 of the European Central Bank, we employ advanced textual analysis techniques, including keyword identification and topic modeling, to isolate speeches related to climate change. We then conduct an event study to estimate the differences in abnormal returns of a large panel of listed companies in response to the European Central Bank's speeches on climate change. Our analysis reveals that the ECB's communication on climate issues has intensified significantly since 2015. Using topic modelling methods, we classify climate speeches into two main themes: (i) green finance and economic policies, and (ii) climate-related risks The event study shows that financial markets tend to reallocate portfolios towards greener ones in the days following the ECB's climate speeches. Our results show that following a climatic speech by the ECB, green financial markets are benefiting from positive abnormal returns by around 1 percentage point. More specifically, we find that climate speeches dealing with green monetary policy and other economic policy instruments have a larger effect on green stock prices than speeches dealing with different types of climate risk.
... Hence, SOEs shoulder more social responsibilities and political tasks such as increasing technological investment when implementing SLP [84]. These measures reduce their market investment costs [85] and might lead to inferior financial growth because the return cycle for technology and infrastructure investments is long [86,87]. The results showing a higher effect on manufacturing firms' performance than non-manufacturing firms can be attributed to the supportive subsidy policies of the "Smart Manufacturing Program" in 2015. ...
Since the emergence of smart logistics as a vital paradigm, it has garnered significant interest from independent firms and governments worldwide, including China. This study aims to examine the relationship between Smart Logistics Policy (SLP) and firm performance both theoretically and empirically. Utilizing data from A-share companies listed on the Shanghai and Shenzhen stock exchanges between 2012 and 2017, this study analyzes the relationship between SLP and firm performance using Propensity Score Matching (PSM) and Difference-in-Differences (DID). The results indicate that SLP significantly enhances a firm's financial performance. Additionally, a heterogeneity test on financial performance reveals that the impact of SLP varies based on ownership and industrial sector. Unexpectedly, SLP has a negative impact on corporate social responsibility (CSR) performance. The heterogeneity test on CSR performance shows that the SLP effect on CSR exhibits no significant difference based on ownership. Furthermore, the impact of SLP on CSR is significantly greater for manufacturing firms compared to non-manufacturing firms. Consequently, this study offers theoretical support and empirical evidence regarding the effects of SLP on firm performance.
... In sovereign debt markets, Mallucci (2022) demonstrates deteriorating borrowing conditions in the Caribbean post-extreme events. Announcements of Corporate Environmental Initiatives that provide information about self-reported corporate efforts to avoid, mitigate, or offset environmental effects have limited or no impact on the financial value assessment of the announcers (Jacobs et al., 2010;Chen et al., 2020). The municipal bond market presents conflicting research results (Goldsmith-Pinkham et al., 2022), while the corporate bond market shows investors paying premiums for companies benefiting from natural disaster announcements (Huynh and Xia, 2021). ...
... Consequently, we remove 277 announcements (by 89 firms) that are within another event's 200-day estimation window. Following Jacobs et al. (2010), we omit announcements by firms that had been trading on the stock exchange for fewer than 40 days; this results in the removal of 53 announcements by 47 firms. We also remove 76 announcements (from 74 firms) that are less relevant to DEI, that is, announcements for which more than 50% of the content concerns non-DEI topics. ...
Despite an increasing emphasis on diversity, equity, and inclusion (DEI), there is a noticeable gap in empirical research concerning its implications, particularly within the manufacturing sector. In response, we scrutinize the impact of DEI commitment on publicly traded manufacturing corporations through the lens of signaling theory. We employ an event study methodology and use structural topic modeling to analyze 233 DEI-commitment announcements issued by 161 firms over a 10-year period between 2013 and 2022. Our findings suggest that DEI-commitment announcements can yield positive abnormal stock returns during the announcement period (from day −1 to 0 and from day −1 to 5). The impact is heightened when the announcement places a stronger emphasis on DEI than non-DEI topics and when it focuses on specific DEI-related subjects, which are referred to here as signal strength and signal specificity. We also discuss the managerial implications of our findings.
... Consequently, we remove 277 announcements (by 89 firms) that are within another event's 200-day estimation window. Following Jacobs et al. (2010), we omit announcements by firms that had been trading on the stock exchange for fewer than 40 days; this results in the removal of 53 announcements by 47 firms. We also remove 76 announcements (from 74 firms) that are less relevant to DEI, that is, announcements for which more than 50% of the content concerns non-DEI topics. ...
... Consequently, we remove 277 announcements (by 89 firms) that are within another event's 200-day estimation window. Following Jacobs et al. (2010), we omit announcements by firms that had been trading on the stock exchange for fewer than 40 days; this results in the removal of 53 announcements by 47 firms. We also remove 76 announcements (from 74 firms) that are less relevant to DEI, that is, announcements for which more than 50% of the content concerns non-DEI topics. ...
... The findings of our study indicate that early adopters that commit to CN and undertake related initiatives experience favorable economic performance, implying the presence of an early mover advantage. However, they contradict the results of the influential event study conducted by Jacobs et al. (2010) in the United States and Europe, which identified an association between negative financial performance and voluntary emissions reduction initiatives among publicly listed companies. Hu et al. (2021) posit that renewable energy positively impacts India's economic growth by facilitating carbon reductions. ...
... This is because companies gain valuable insights into resources or capabilities, which can become competitive advantages (WERNERFELT, 1984;HART, 1995). Porter's Hypothesis underscores the required time -typically around two years -for environmental innovations to produce positive financial results (PORTER & VAN DER LINDE, 1995;LIU, 2020 Negative (-) Neoclassical theory Friedman, 1970;Cohen et al., 1995;Cordeiro & Sarkis, 1997;Wagner, 2005;Earnhart & Lízal, 2007;Jacobs et al., 2010 The food industry has seldom been the focus of such studies. Additionally, the few that do address it examine varying notions of environmental and financial performance. ...
This study examined the relationship between Environmental Performance (EP) and Financial Performance (FP) in the European food industry. The food industry is essential for population sustenance, but the rising population and the consequent increase in food production demand have implications for climate change. The aim of this study was to determine if businesses that consume water more efficiently and have lower CO 2 emission intensities might experience improved financial performance. Financial and environmental data were sourced from external databases and company reports, and both quantile regression and correlation analyses were conducted. The results reveal that various sectors within the food industry exhibit different linkages between Environmental Performance and Financial Performance. Furthermore, our findings indicate that water use efficiency can significantly influence financial performance, either positively or negatively, while CO 2 emission intensity did not exhibit a definitive impact on Financial Performance.
... Prominent trends in luxury tourism include the pursuit of authenticity, slow tourism (Krešić and Gjurašić, 2022), health and wellness, and sustainable tourism (Amatulli et al., 2021). Given the significant contribution of tourism services to the global economy, it is crucial for the hotel industry to adopt proactive environmental strategies that not only generate widespread social acceptance but also enhance market legitimacy (Jacobs et al., 2010). An adequately designed and effectively implemented environmental management program holds the potential to enhance levels of job satisfaction and organizational commitment among luxury hotel staff members (Sourvinou and Filimonau, 2017). ...
Background and Purpose
As outlined in the National Tourism Development Strategy until 2030, Croatia aims to provide higher value, innovative, sustainable, and authentic tourist experiences. There is a need to examine how the main tourism stakeholders can contribute to the transformation of traditional and commodified tourism products into premium-class offerings that add value throughout the entire value chain. It is important for premium-class hotels to take additional steps in improving their offerings to positively impact the entire destination and enhance service quality. This paper aims to: explore initiatives for promoting innovation in premium-class experiences within destinations focusing the cooperation between on hotel companies and DMOs; identify anticipated trends influencing the future of the tourism industry, and assess the future prospects of premium-class hotels in Croatia.
Design/Methodology/Approach
The methodology incorporated both quantitative and qualitative approaches, driven by the structured nature of the questions in the online survey that target sales and/or marketing directors of hotel companies that have premium-class hotels in their portfolio. Suitable statistical methods were employed to conduct the analysis for the quantitative portion of the data. Content analysis was utilized to analyze the open-ended questions. For this purpose, the MAXQDA software for coding, categorizing, and exploring patterns within the data.
Originality/value
This study represents one of the pioneering investigations into the essential initiatives that hotel companies need to undertake in order to orchestrate the development of a destination that relies on its premium-class experiences. Furthermore, the study examines the role of supporting institutions such as destination management organizations (DMOs) in facilitating this process. A conceptual model to improve the development of the premium hotel segment and destination at the same time, pursued by the responsible practices and initiatives of the hotel companies and strong partnerships with DMO and the local community, is proposed.
Problem definition: It is well known that the power sector requires flexibility, especially from fossil fuel–based power-generating units, to balance demand side variability and supply side fluctuations. However, the environmental consequences related to possessing and exercising such flexibility remain relatively unexplored. In this study, we examine the environmental impact of two forms of flexibility pertinent to power generation: fuel flexibility—that is, the ability to utilize multiple fuel types, and volume flexibility—that is, the ability to alter production volumes quickly. Methodology/results: We assembled a data set that spans 1998–2016 and includes details on fuel usage, power generation, generating unit characteristics, and carbon dioxide (i.e., CO 2 ) emissions for 3,135 fossil fuel power-generating units that account for more than 92% of the United States’ fossil fuel–generating capacity. Our empirical analysis reveals that power-generating units that possess fuel flexibility or volume flexibility generate greater CO 2 emissions than comparable nonflexible generating units. Additionally, when power-generating units exercise fuel flexibility (i.e., they use multiple fuel types in a period) or volume flexibility (i.e., they vary production to a greater degree in a period), they generate greater CO 2 emissions. By contrast, when power-generating units exercise both fuel and volume flexibility, we find that they diminish the aggregate emissions increases expected from exercising fuel or volume flexibility alone. Managerial implications: We add to the literature by exploring how flexibility affects environmental performance and by disambiguating the effects of possessing flexibility and exercising flexibility. These results are important when considering the penetration of renewables, the adoption of utility-grade storage, and demand response as each of these paths can significantly affect the flexibility burden placed on conventional sources of power. Thus, our results are relevant to policy makers and practitioners because they crystallize the environmental tradeoffs involved with deploying flexibility in fossil fuel–based power-generating units.
Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2023.0522 .
To tackle the energy and climate crises and achieve sustainable development, China has designated the development of new energy vehicles (NEVs) as a national strategy.This paper delves into the coopetition strategy of dual-model automakers under the dual credit policy (DCP) using a subsidy-R&D-production three-stage game model, considering government subsidies and consumer preferences. The model explores various strategies, including full competition and different R&D cooperation scenarios for fuel vehicles (FVs) and NEVs. Key findings include: (1) R&D subsidies boost NEVs R&D investments but may not always optimize social welfare. (2) When NEVs technology spillovers are low, firms should fully cooperate; otherwise, the FVs R&D cooperation is optimal, especially with high FVs spillovers. (3) Investments and outputs in both vehicle types positively correlate with technology spillovers, and consumer preferences. Conversely, FVs equilibrium decreases with NEVs credit proportion and fuel consumption disparities. (4) The credit price positively influences R&D investments and outputs of NEVs, but its effects on FVs' R&D investments, outputs, corporate profits, and social welfare vary based on market dynamics. Recommendations include optimizing subsidy policies, supporting low-carbon FVs, enhancing infrastructure, and strengthening DCP regulations to stabilize credit price expectations.
Sustainable supply management has become important for improving business performance. Therefore, management needs to understand the factors that increase performance in this area. This article examines how two specific functions of sustainable sourcing (environment and procurement) affect the sustainable performance of corporate sector. Data was collected from 453 textile companies in Pakistan and analyzed using questionnaires. The findings of this study show that green supply chain management (GSCM) has a positive impact on business performance. Also, high levels of environmental and supply chain involvement strengthen the relationship between GSCM and performance. Surprisingly, high levels of outsourcing were found to harm GSCM relationships. The study used a cross-sectional survey-based design. Future research will utilize longitudinal studies to examine the long-term effects of GSCM practices on performance. This article supports the idea that GSCM practices increase performance diversity. It suggests that investigations in collaboration with a wide range of ecosystem partners (eccentricity) and improving the supply chain can lead to better environmental outcomes. Managers are encouraged to take a closer look at how they think about and monitor their supply chains. The article makes substantial contributions to this field of research. Firstly; it develops and validates a scale to measure Eco-centricity and provides a chain of control. Thereafter, it shows how these two variables specific to supply chain sustainability can have a positive impact on companies' performance.
This study investigates the impact of carbon emission reduction on the financial performance of Toyota Motors through a quantitative research approach. Using Return on Assets (ROA) as a proxy for financial performance and Toyota's carbon emission data from 2005 to 2020, the research employs a single-case study design focused on the North American region. Statistical analysis, including regression modeling, reveals a significant positive relationship between carbon emission reduction and ROA. The findings suggest that Toyota's efforts in reducing carbon emissions positively influence its financial performance, highlighting the strategic importance of sustainability initiatives in enhancing corporate profitability and resilience amidst global regulatory pressures. This study contributes to both environmental management and corporate finance literature by demonstrating the financial benefits of carbon efficiency in the automotive industry.
Environmental regulations are important organizational strategic drivers. Environmental regulatory mechanisms include “carrots” or “sticks”—they can be incentive or coercion‐based. This study empirically investigates stock market reactions to various environmental regulatory mechanisms. Using a sample of 334 environmental regulatory events reported by 212 listed Chinese firms between 2010 and 2020, we find that monetary reward has a greater positive market reaction towards governmental reward than non‐monetary reward. We also find that governmental operational disruption penalties have a greater negative market reaction than operational non‐disruption penalties. Governmental levels of the environmental regulation implementation subject do not play a moderating role in the relationship between governmental regulations and firm market value. These findings provide various policy and organizational insights as businesses seek to meet legitimacy gains in response environmental regulatory mechanisms.
Purpose
Based on stakeholder and legitimacy theory, this paper aims to investigate the impact of carbon emission disclosure on firm financial performance. Further, the study attempts to explore the potential moderating effect of firm size on this relationship.
Design/methodology/approach
The study is based on BSE 100 Indian firms for the period of 2018–2019 to 2020–2021. The association between carbon emission disclosure and firm financial performance, along with the moderating role of firm size, has been explored through regression models.
Findings
The present study confirmed the significant and negative association between carbon emission disclosure and firm financial performance. Furthermore, results reveal that firm size positively moderates the relationship between carbon emission disclosure and firm financial performance.
Social implications
Carbon emission disclosure helps corporate organizations advance the issues of climate change disclosure both nationally and globally.
Originality/value
To the best of the authors’ knowledge, the current study is the first of its kind to explore the potential moderating effect of firm size on the relationship between carbon emission disclosure and firm financial performance. The current study provides significant novel insights into sustainability, climate change and finance literature.
We identified the principal areas and momentum of the carbon credits research and proposed a future investigation course. Using a bibliometric examination, we analyze a sample of 546 research papers from the ISI Web of Science database to analyze research studies on carbon credits between 2000 and 2019. We found the most persuasive papers and authors based on their publications, citations, region and importance inside the carbon credit framework. We look at the present scenario, discover obstacles to development in the literature on carbon credits and recommend roads for future research. Even though carbon credits research happens universally, an absence of joint exertion exists across country lines, especially between the European and Asian economies.
Research on carbon credits centers around Emission trading/Carbon trading under clean development mechanisms and Cap and trade, with relatively less attention on certified emission reductions, emission rights and verified emissions. We conclude by recommending that the research scope of carbon credit research can be enhanced using five potential research headings. Finally, this research would help the firms and management handle “carbon credits” effectively and efficiently.
This study investigates the effects of green innovation (GI) on financial performance under both accounting and market‐based perspectives in European Union (EU) listed non‐financial firms. In addition, this study explores whether the R&D investments and the Environmental, Social and Governance (ESG) disclosure play a mediating role over the association between GI and accounting‐based and market‐based financial performance, respectively. Based on a sample of 526 firms over the period 2012–2022, we find that GI is negatively associated with accounting‐based financial performance and positively associated with market‐based financial performance. We further find that GI impacts on accounting‐based financial performance via the channel of R&D investments and on market‐based financial performance via the channel of ESG disclosure. This study provides useful contributions to prior research by encouraging the adoption of an integrated perspective when evaluating potential effects of GI. This study can also assist managers in better preparing for the challenges of implementing GI by leveraging the ESG disclosure. It also advices to investors to carefully assess the more complex impact of GI on financial performance of the firm within their capital allocation decision‐making process. In the same vein, it offers some insights to policy makers interested in facilitating the transition to a sustainable economy.
Although numerous past studies have examined the association between corporate social responsibility (CSR) and firm value, the findings have been inconsistent. This study examines how firm visibility, financial slack, and monitoring affected the relationship between CSR and firm value. We find that CSR performance and its three dimensions, that is, environmental, social, and governance—have positive effects on firm value. The results also show that under slack resources and strong corporate governance, the positive effect of CSR on firm value is strongly supported.
These results suggest that managers should be aware that they can also attract shareholders’ interests in the stock market while addressing stakeholders’ concerns, especially when the firm has available financial slack and strong board monitoring.
Using the staggered establishment of environmental courts in China, we study the effect of environmental law enforcement on audit fees. We find that companies’ abnormal audit fees increase significantly after the establishment of a specialized environmental court strengthens environmental law enforcement. Our cross-sectional analyses show that the increase in abnormal audit fees is greater for companies with worse environmental performance and for those in heavily polluting industries. We then assess the channels through which environmental courts affect companies’ audit fees and find that the effect of the courts on fees is driven by both audit effort and audit risk and the establishment of a particular type of environmental court (an independent environmental adjudication division). Finally, our results reveal that public concern about environmental protection plays a substitutive role for environmental courts in affecting the increase in audit fees. Our findings suggest that environmental courts aimed at strengthening environmental laws and regulations alter firms’ and auditors’ behaviors and decisions, having unintended spillover effects on audit pricing.
Purpose
This work analyzes, through social-environmental reports, whether banks with higher transparency in social-environmental policies better safeguard financial stability in Brazil.
Design/methodology/approach
The analysis is carried out through a panel database analysis of the 42 largest Brazilian banks, representing 98% of the Brazilian financial system. Seeking to avoid spurious results, we followed rigorous methodological standards. Hence, we conducted an empirical analysis using a dynamic panel data model, we used the difference generalized method of moments (D-GMM) and the system generalized method of moments (S-GMM).
Findings
The results show that the higher the transparency of social-environmental policies, the lower the chance of possible stress on the financial stability of Brazilian banks. In sum, this study builds evidence that disclosing risks related to policies about sustainability can enhance financial stability. It is essential to highlight that social-environmental transparency does not have as direct objective financial stability.
Originality/value
The manuscript submitted represents an original work that analyzes whether banks with higher transparency in social-environmental policies better safeguard financial stability. Some countries, such as Brazil, have their potential for sustainable policies spotlighted due to their green territory and diverse natural ecosystems. Besides having green potential, Brazil is a developing country with a well-developed financial system. These characteristics make Brazil one of the best laboratories for studying the relationship between transparency in social-environmental policies and financial stability.
Green innovation endeavors are of utmost importance for China's green transformation, and the precondition for corporations to undertake green innovation is whether it can enhance their financial performance. Additionally, corporations must utilize leverage to stabilize funding for green innovation. However, it is uncertain how financial leverage affects the relationship between green innovation and corporate financial performance. This study examines the impact mechanism of green innovation on corporate financial performance, as well as its interaction with leverage ratio, using data from listed companies with green patents in the Shanghai and Shenzhen A-share markets spanning the period from 2000 to 2020. Employing a nonlinear panel data model, the findings reveal a U-shaped relationship between green innovation and corporate financial performance. Furthermore, the impact of green strategic innovation and green substantive innovation on corporate financial performance exhibits heterogeneity. The study also highlights the negative impact of the risk accumulation effect resulting from the combination of leverage ratio and green innovation on corporate financial performance. Conversely, the interaction between deleveraging measures and green innovation proves beneficial in promoting corporate financial performance. Therefore, decision-makers in corporations and governments should make rational use of financial leverage when formulating green innovation development strategies.
Purpose- This thesis investigates the impact ESG practices have on European Banks, if it is a
positive, negative, or neutral impact?
Methodology – This thesis uses fixed effects models both One-way and Two-way effect (within)
models, Correlation Matrix, and a summary statistics table, to find the relationship between ESG
practices and profitability of European banks. We picked a sample of 77 European banks from
18 countries from the periods 2015 to 2021. The dependent variables were ROA and ROCE,
independent variables were Overall ESG score, Environmental score, Social score and
Governance score. The control variables were GDP Growth rate, Debt to Equity ratio and Market
Capitalization.
Findings- The findings of this thesis suggest that there is a positive relationship between
Environmental and social scores with the profitability of banks, meaning that an increase in
social and environmental performances of banks may lead to an increase in profitability,
however Overall ESG and Governance scores have no significant relationship with bank
profitability
This article explores the paradoxical discourse of sustainability reporting, which is characterized by significant costs associated with sustainable practices yet lacks direct economic benefit from such investments. The paper aims to resolve this paradox through a linguistic lens and seeks to understand the motivations behind the publication of sustainability reports. The primary value of the study lies in assessing the role of these reports within corporate communication: whether they genuinely and objectively provide information on sustainability or are more akin to tools of public relations and marketing. The article tests this assumption by analyzing the use of optimistic linguistic strategies in corporate sustainability reports compared to other types of official documentation. The research underscores the importance of establishing unified standards for sustainability reporting, which could lead to greater transparency within corporations.
Our paper focuses on disentangling the non-linear connection between circularity (CE) and energy security (ES). In order to evaluate the availability, acceptability, and developability of energy, we incorporated seven variables. The degree of circularity in European countries can be assessed by using six different measures. Using data from European Statistics, we examine variables from 2012 to 2019. We employ FGLS and PSCE estimation methods to quantify the effects of circularity on three aspects of energy security. Our findings are critical that circularity has non-linear impacts on the consumption of non-fossil fuels, energy, carbon dioxide emissions, and renewable energy. The result is consistent and robust when we apply different measures for circularity. The effect is maintained in the long run. Although the circular economy can have short-term negative effects, it can also have long-term benefits. Our research findings provide important implications for policymakers in terms of promoting the success of the use of circularity initiatives in securing the energy system.
Bu çalışma Rusya-Ukrayna savaşının BIST elektrik endeksinde yer alan şirketlerin hisse senedi getirileri üzerindeki etkisini incelemektedir. Rusya’nın Ukrayna’ya askerî harekât başlattığını duyurduğu 24 Şubat 2022 tarihi ve sonrasında küresel piyasalarda yaşanan dalgalanmalara dair ampirik bulgulara katkı sağlanması amaçlanmıştır. BIST Elektrik Endeksi’nde yer alan 24 şirkete ait hisse senedi kapanış fiyatları kullanılarak şirketlerin ortalama anormal getirileri (AAR) ve birikimli ortalama anormal getirileri (CAAR) hesaplanmıştır. 7 farklı olay penceresinde ortalama anormal getirilerin anlamlılığı parametrik ve parametrik olmayan testlerle sınanmıştır. Elde edilen bulgulara göre (-1,+1), (-2,+2), (-3,+3), (-4,+4), (-5,+5), (-6,+6) ve (-7,+7) olay pencerelerinde enerji şirketlerinin negatif yönlü CAAR sağladığı; bu pencereler içinde BIST 100’e göre en yüksek negatif getirinin (-3,+3) olay penceresinde -%5,5 oranında gerçekleştiği tespit edilmiştir. Benzer şekilde (-10,+10) olay penceresinde şirketlerin AAR değerlerinin anlamlılığı parametrik ve parametrik olmayan testler ile sınanmıştır. Buna göre, 24 Şubat 2022 tarihli olay gününde yatırımcıların karşılaştırma endeksi olan BIST 100 endeksine nazaran yaklaşık %5 güçlü yönde negatif bir getiri tespit edilmiştir. Bu durum yatırımcıların panik satışından kaynaklanmış olabileceği düşünülmektedir. Elde edilen bulgular Rusya-Ukrayna savaşının çıkması karşısında BIST enerji şirketlerinin hisse senetlerinin istatistiksel olarak anlamlı, negatif getiri ile karşılaştıklarını göstermektedir. Bu durumun yatırımcıların savaşla birlikte enerji sektörü yatırımlarını savaştan daha az etkilenmesi beklenen piyasalara yöneltmelerinden ya da enerji sektöründe ortaya çıkan belirsizlik nedeniyle başka sektörlere yönelmelerinden kaynaklanabileceği düşünülmektedir.
We examine the relationship between lean manufacturing practices and environmental performance as measured in terms of air emissions and resource use. We draw on two unique surveys of 31 automobile assembly plants in North America and Japan, which contain information on manufacturing practice and environmental performance, as well as in-depth interviews with 156 plant level employees at 17 assembly plants. Our survey results and interviews suggest that lean management and reduction of air emissions of volatile organic compounds (vocs) are associated negatively. Lean manufacturing practices contribute to more efficient use of paints and cleaning solvents, but these in-process changes are not sufficient to meet the most stringent air regulations. We found some evidence to support the link between lean practices and resource efficiency. While our survey results were in hypothesized direction, they were not statistically significant. In-depth semi-structured interviews, however, suggest a more robust relationship, and we use them to describe some mechanisms by which all three aspects of lean management (buffer minimization, work systems, and human resource management) may be related to environmental management practices and performance.
Little empirical work has been done on the effect of stakeholder management on corporate performance. In this study, we contributed to stakeholder theory development by (1) deriving two distinct stakeholder management models from extant research, (2) testing the descriptive accuracy of these models, and (3) including important variables from the strategy literature in the tested models. The results provide supports for a strategic stakeholder management model but no support for an intrinsic stakeholder commitment model. Implications of these findings for management practice and future research are discussed.
Inconsistent findings have resulted from studies of the relationships among social disclosure, social performance, and economic performance of U.S. corporations. No clear tendency can be detected. The main reasons for these inconsistencies are: (a) a lack in theory, (b) inappropriate definition of key terms, and (c) deficiencies in the empirical data bases currently available. Suggestions are made as to how this situation can be improved.
Drawing on the resource-based view of the firm, we posited that environmental performance and economic performance are positively linked and that industry growth moderates the relationship, with the returns to environmental performance higher in high-growth industries. We tested these hypotheses with an analysis of 243 firms over two years, using independently developed environmental ratings. Results indicate that "it pays to be green" and that this relationship strengthens with industry growth. We conclude by highlighting the study's academic and managerial implications, making special reference to the social issues in management literature. We wish to express our appreciation to the Franklin Research and Development Corporation for allowing us to use their proprietary database and to Roger Chope and Steven Matsunaga for assistance with methodological issues. We also thank Thomas Dean, Neil Fargher, David Levy, John Mahon, Alan Meyer, Peter Mills, Richard Mowday, and the anonymous reviewers for helpful comments.
This article extends earlier research concerning the relationship between corporate social performance and corporate financial performance, with particular emphasis on methodological inconsistencies. Research in this area is extended in three critical areas. First, it focuses on a particular industry, the chemical industry. Second, it uses multiple sources of data-two that are perceptual based (KLD Index and Fortune reputation survey), and two that are performance based (TRI database and corporate philanthropy) in order to triangulate toward assessing corporate social performance. Third, it uses the five most commonly applied accounting measures in the corporate social performance and corporate financial performance (CSP/CFP) literature to assess corporate financial performance. The results indicate that the a priori use of measures may actually predetermine the CSP/CFP relationship outcome. Surprisingly, Fortune and KLD indices very closely track one another, whereas TRI and corporate philanthropy differentiate between high and low social performers and do not correlate to the firm's financial performance.
Most theorizing on the relationship between corporate social/environmental performance (CSP) and corporate financial performance (CFP) assumes that the current evidence is too fractured or too variable to draw any generalizable conclusions. With this integrative, quantitative study, we intend to show that the mainstream claim that we have little generalizable knowledge about CSP and CFP is built on shaky grounds. Providing a methodologically more rigorous review than previous efforts, we conduct a meta-analysis of 52 studies (which represent the population of prior quantitative inquiry) yielding a total sample size of 33,878 observations. The meta- analytic findings suggest that corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility is likely to pay off, although the operationalizations of CSP and CFP also moderate the positive association. For example, CSP appears to be more highly correlated with accounting-based measures of CFP than with market-based indicators, and CSP reputation indices are more highly correlated with CFP than are other indicators of CSP. This meta-analysis establishes a greater degree of certainty with respect to the CSP-CFP relationship than is currently assumed to exist by many business scholars.
Automobile assembly plants worldwide face increasing pressures in the environmental arena. How a plant responds to these issues has significant implications for the cost and quality of plant operations. This paper uses three case studies of US assembly plants to examine the role of partnerships between original equipment manufacturers (OEMs) and their suppliers in improving the environmental performance of manufacturing operations. We find that strong partnerships with suppliers, supported by appropriate incentive systems, were a significant element of the successful application of innovative environmental technologies. Supplier staff members were an important part of achieving environmental performance improvements while maintaining production quality and cost goals. The management factors influencing the extent and nature of supplier involvement are identified. The results of this work point to the importance of suppliers in addressing the manufacturing challenges of the future.
Evidence can be marshalled to support either the view that pollution abatement is a cost burden on firms and is detrimental to competitiveness, or that reducing emissions increases efficiency and saves money, giving firms a cost advantage. In an effort to resolve this seeming paradox, the relationship between emissions reduction and firm performance is examined empirically for a sample of S&P 500 firms using data drawn from the Investor Responsibility Research Center's Corporate Environmental Profile and Compustat. The results indicate that efforts to prevent pollution and reduce emissions drop to the ‘bottom line’ within one to two years of initiation and that those firms with the highest emission levels stand the most to gain.
We examine the relationship between lean manufacturing practices and environmental performance as measured in terms of air emissions and resource use. We draw on two unique surveys of 31 automobile assembly plants in North America and Japan, which contain information on manufacturing practice and environmental performance, as well as in-depth interviews with 156 plant level employees at 17 assembly plants. Our survey results and interviews suggest that lean management and reduction of air emissions of volatile organic compounds (vocs) are associated negatively. Lean manufacturing practices contribute to more efficient use of paints and cleaning solvents, but these in-process changes are not sufficient to meet the most stringent air regulations. We found some evidence to support the link between lean practices and resource efficiency. While our survey results were in hypothesized direction, they were not statistically significant. In-depth semi-structured interviews, however, suggest a more robust relationship, and we use them to describe some mechanisms by which all three aspects of lean management (buffer minimization, work systems, and human resource management) may be related to environmental management practices and performance.
This paper integrates a stakeholder perspective into the resource-based view of the firm, to analyze the mechanisms that link the adoption of the international Environmental Management Standard ISO 14001 to firms' competitive advantage. This paper shows that the perceived competitiveness impact of the standard depends mostly on the involvement of firms' external stakeholders (distributors, customers, community members, and regulatory agencies) in its design. ISO 14001 is a process standard, and it is difficult for stakeholders to get credible information on the effectiveness of the standard if they are not involved in its design. Stakeholders' involvement in a firm's ISO 14001 standard becomes a valuable organizational capability, which is difficult to imitate by competitors. The analysis is supported by primary data collected from a questionnaire mailed to 152 firms, resulting in 55 observations representing 30% of the total number of firms certified in the U.S. in August 1998.
A central and contentious debate in many literatures concerns the relationship between financial and social performance. We advance this debate by measuring the financial–social performance link mutual funds that practice socially responsible investing (SRI). SRI fund managers have an array of social screening strategies from which to choose. Prior studies have not addressed this heterogeneity within SRI funds. Combining modern portfolio and stakeholder theories, we hypothesize that the financial loss borne by an SRI fund due to poor diversification is offset as social screening intensifies because better-managed and more stable firms are selected into its portfolio. We find support for this hypothesis through an empirical test on a panel of 61 SRI funds from 1972 to 2000. The results show that as the number of social screens used by an SRI fund increases, financial returns decline at first, but then rebound as the number of screens reaches a maximum. That is, we find a curvilinear relationship, suggesting that two long-competing viewpoints may be complementary. Furthermore, we find that financial performance varies with the types of social screens used. Community relations screening increased financial performance, but environmental and labor relations screening decreased financial performance. Based on our results, we suggest that literatures addressing the link between financial and social performance move toward in-depth examination of the merits of different social screening strategies, and away from the continuing debate on the financial merits of either being socially responsible or not. Copyright © 2006 John Wiley & Sons, Ltd.
Previous empirical work suggests that firms with high environmental performance tend to be profitable, but questions persist about the nature of the relationship. Does stronger environmental performance really lead to better financial performance, or is the observed relationship the outcome of some other underlying firm attribute? Does it pay to have cleanrunning facilities or to have facilities in relatively clean industries? To explore these questions, we analyze 652 U.S. manufacturing firms over the time period 1987–1996. Although we find evidence of an association between lower pollution and higher financial valuation, we find that a firm's fixed characteristics and strategic position might cause this association. Our findings suggest that “When does it pay to be green?” may be a more important question than “Does it pay to be green?”
To date, it is unclear as to how Environmental Management Systems (EMS) are implemented and what effects these systems have on other environmental and operational practices. This study reports empirical insights to EMS practices based on the largest EMS survey of manufacturing firms in the United States. The objective of the study is to test for a relationship between environmental management systems and perceived operations performance while considering direct and indirect effects of various environmental practices. The results of this study are supported by several field studies and provide a new source of information regarding EMS theory development. The results also indicate a positive relationship between an EMS, the environmental practices a firm engages, and operations performance measures.
The ISO 9000 series of quality management systems standards, introduced in 1986, has been adopted at over 560,000 locations worldwide. Anecdotal evidence suggests that firms can achieve internal benefits such as quality or productivity improvements or that certification can help firms maintain or increase their market share, or both. Others argue that the standard is too generic to cause performance improvement but can be seen as a signal of good management. In this paper, we track financial performance from 1987 to 1997 of all publicly traded ISO 9000 certified manufacturing firms in the United States with SIC codes 2000--3999, and test whether ISO 9000 certification leads to productivity improvements, market benefits, and improved financial performance. We employ event-study methods, matching each certified firm to a control group of one or more noncertified firms in the same industry with similar precertification size and/or return on assets. We find that firms' decision to seek their first ISO 9000 certification was indeed followed by significant abnormal improvements in financial performance, though the exact timing and magnitude of this effect depend on the specification of the control group. Three years after certification, the certified firms do display strongly significant abnormal performance under all control-group specifications. The degree to which the precise results vary across control-group specifications indicates that event studies should always include extensive sensitivity analysis, for instance matching by size and performance separately and jointly, using both single firms and portfolios as controls.
Environmental management has the potential to play a pivotal role in the financial performance of the firm. Many individuals suggest that profitability is hurt by the higher production costs of environmental management initiatives, while others cite anecdotal evidence of increased profitability. A theoretical model is proposed that links strong environmental management to improved perceived future financial performance, as measured by stock market performance. The linkage to firm performance is tested empirically using financial event methodology and archival data of firm-level environmental and financial performance. Significant positive returns were measured for strong environmental management as indicated by environmental performance awards, and significant negative returns were measured for weak environmental management as indicated by environmental crises. The implicit financial market valuation of these events also was estimated. Cross-sectional analysis of the environmental award events revealed differences for first-time awards and between industries. First-time award announcements were associated with greater increases in market valuation, although smaller increases were observed for firms in environmentally dirty industries, possibly indicative of market skepticism. This linkage between environmental management and financial performance can be used by both researchers and practitioners as one measure of the benefits experienced by industry leaders, and as one criterion against which to measure investment alternatives.
There has been an increase in interest towards corporate activities aimed at reducing or eliminating the waste created during the production, use and/or disposal of the firm’s products. Prior research has focused on the need for such activities, while current research tries to identify those components that encourage or discourage such activities. As a result of the introduction of ISO 14001, attention has turned to corporate environmental management systems (EMS). The underlying assumption is that such a system is critical to a firm’s ability to reduce waste and pollution while simultaneously improving overall performance. This study evaluates this assumption. Drawing on data provided by a survey of North American managers, their attitudes toward EMS and ISO 14001, this study assesses the relative effects of having a formal but uncertified EMS compared to having a formal, certified system. The results strongly demonstrate that firms in possession of a formal EMS perceive impacts well beyond pollution abatement and see a critical positive impact on many dimensions of operations performance. The results also show that firms having gone through EMS certification experience a greater impact on performance than do firms that have not certified their EMS. Additionally, experience with these systems over time has a greater impact on the selection and use of environmental options. These results demonstrate the need for further investigation into EMS, the environmental options a firm chooses, and the direct and indirect relationships between these systems and performance.
We investigate the influence of environmental initiatives on firms’ anticipated economic performance using an event study methodology. Framing our arguments within an organizational reputation framework, we propose that, due to potential positive effects of these initiatives on firm performance (through increases in reputation), shareholders will react positively to announced environmental initiatives. Contrary to our hypothesis, we found no overall effect of announced environmental initiatives on stock returns. However, our findings indicate that reactions to product-driven initiatives are significantly different than reactions to process-driven ones.
Event studies focus on the impact of particular types of firm-specific events on the prices of the affected firms' securities. In this paper, observed stock return data are employed to examine various methodologies which are used 111 event studies to measure security price performance. Abnormal performance is Introduced into this data. We find that a simple methodology based on the market model performs well under a wide variety of conditions. In some situations, even simpler methods which do not explicitly adjust for marketwide factors or for risk perform no worse than the market model. We also show how misuse of any of the methodologies can result in false inferences about the presence of abnormal performance.
Since scientists are becoming increasingly concerned about the declining state of earth's environment and the dubious long-term sustainability of today's high-tech economy, government policymakers are starting to focus on pollution prevention--reducing or eliminating the creation of pollution through smart planning and design--as the most effective way to protect the environment. To product designers and engineers, this emerging ecological emphasis is embodied in the concept of design for the environment (DFE) or green design, a still-developing systems method that promises to bring significant changes to future design practice. As described in this article, DFE is a design process in which a product's environmentally preferable attributes--recyclability, disassembly, maintainability, refurbishability, and reusability--are treated as design objectives rather than as constraints. As these environmental objectives are sought, it is important that the product's performance, useful life, and functionality are maintained. DFE makes a good business sense because it lowers the costs of hazardous-waste disposal while reducing the expenses associated with regulation compliance. At the heart of DFE, Richards noted, is the prompt establishment of a recycling infrastructure and the development of timely and accurate environmental data on the comparative risks of alternative materials, processes, and technologies that designers could use to measure the environmental impacts of a product.
A primary issue in the field of business and society over the past 25 years has been the relationship between corporate social performance and corporate financial performance. Recently, Griffin and Mahon (1997) presented a table categorizing studies that have investigated this relationship. Motivated by concerns with this table, as well as a desire to account for progress in research in this area, the authors reconstructed it. The authors present a portrait of this relationship that is (a) substantially different from that shown in the Griffin and Mahon table and (b) more consistent with the latest research on the topic.
Historically. management theory has ignored the constraints imposed by the biophysical (natural) environment. Building upon resource-based theory, this article attempts to fill this void by proposing a natural-resource-based view of the firm-a theory of competitive advantage based upon the firm's relationship to the natural environment. It is composed of three interconnected strategies: pollution prevention, product stewardship, and sustainable development. Propositions are advanced for each of these strategies regarding key resource requirements and their contributions to sustained competitive advantage.
This article provides empirical results indicating that acting in a socially respon- sible and lawful manner is a necessary, though not sufficient, condition for increasing shareholder wealth. It meta-analyzes 27 event studies that have mea- sured the stock market's reaction to incidences of socially irresponsible and illicit behavior. It finds that for firms engaging in socially irresponsible and illicit behavior, the effect on shareholder wealth is negative (wealth decreases), statisti- cally significant (p < .001), and so substantial in size (D = -.932) that the distribution of abnormal returns is shifted nearly a full standard deviation to the left (i.e., negatively) from their expected standard normal distribution. This result gives rationally self-interested firms a self-interested reason to act in a socially responsible and law-abiding manner. It also provides support for a moral position called enlightened self-interest, which prescribes that firms should act in a socially responsible manner to promote the shareholders' interests.
This study investigates financial correlates of corporate philanthropy in Fortune 1000 companies using structural equation modeling. The results suggest that cash flow (one of the most discretionary types of organizational slack) has a significant impact on a firm’s cash donations to charitable causes, but monetary donations do not affect firm financial performance. These findings support the accepted view of corporate philanthropy as a discretionary social responsibility and the traditional thinking about firm giving in the business and society literature—that doing well enables doing good. Contrary to some contemporary thinking, the findings imply no significant effect on profits from corporate generosity.
This paper examines properties of daily stock returns and how the particular characteristics of these data affect event study methodologies. Daily data generally present few difficulties for event studies. Standard procedures are typically well-specified even when special daily data characteristics are ignored. However, recognition of autocorrelation in daily excess returns and changes in their variance conditional on an event can sometimes be advantageous. In addition, tests ignoring cross-sectional dependence can be well-specified and have higher power than tests which account for potential dependence.
We investigate the influence of environmental initiatives on firms’ anticipated economic performance using an event study methodology. Framing our arguments within an organizational reputation framework, we propose that, due to potential positive effects of these initiatives on firm performance (through increases in reputation), shareholders will react positively to announced environmental initiatives. Contrary to our hypothesis, we found no overall effect of announced environmental initiatives on stock returns. However, our findings indicate that reactions to product-driven initiatives are significantly different than reactions to process-driven ones.
Companies are increasingly asked to provide innovative solutions to deep-seated problems of human misery, even as economic theory instructs managers to focus on maximizing their shareholders' wealth. In this paper, we assess how organization theory and empirical research have thus far responded to this tension over corporate involvement in wider social life. Organizational scholarship has typically sought to reconcile corporate social initiatives with seemingly inhospitable economic logic. Depicting the hold that economics has had on how the relationship between the firm and society is conceived, we examine the consequences for organizational research and theory by appraising both the 30-year quest for an empirical relationship between a corporation's social initiatives and its financial performance, as well as the development of stakeholder theory. We propose an alternative approach, embracing the tension between economic and broader social objectives as a starting point for systematic organizational inquiry. Adopting a pragmatic stance, we introduce a series of research questions whose answers will reveal the descriptive and normative dimensions of organizational responses to misery.
Since scientists are becoming increasingly concerned about the declining state of earth's environment and the dubious long-term sustainability of today's high-tech economy, government policymakers are starting to focus on pollution prevention--reducing or eliminating the creation of pollution through smart planning and design--as the most effective way to protect the environment. To product designers and engineers, this emerging ecological emphasis is embodied in the concept of design for the environment (DFE) or green design, a still-developing systems method that promises to bring significant changes to future design practice. As described in this article, DFE is a design process in which a product's environmentally preferable attributes--recyclability, disassembly, maintainability, refurbishability, and reusability--are treated as design objectives rather than as constraints. As these environmental objectives are sought, it is important that the product's performance, useful life, and functionality are maintained. DFE makes a good business sense because it lowers the costs of hazardous-waste disposal while reducing the expenses associated with regulation compliance. At the heart of DFE, Richards noted, is the prompt establishment of a recycling infrastructure and the development of timely and accurate environmental data on the comparative risks of alternative materials, processes, and technologies that designers could use to measure the environmental impacts of a product.
Management of the natural environment is becoming an increasingly important issue to manufacturing firms, yet their manufacturers are also challenged to implement changes that improve competitiveness. To meet this challenge, a new construct grounded in the resource-based view of the firm and manufacturing strategy has been developed: the environmental technology portfolio. The composition of a plant's portfolio - the pattern of its investment in environmental technologies in manufacturing over time - was found to significantly affect both manufacturing and environmental performance for a sample of manufacturing plants.
This paper endeavours to present building owners, managers, architects and design/builders with a compelling business case for considering a green building for their new construction projects. A green building, for the purposes of this paper, refers to any building that meets the high standards set forth in the US Green Building Council?s (USGBC) Leadership in Energy and Environmental Design (LEED) Green Building Rating System?, the pre-eminent metric system by which new buildings are judged to be environmentally conscious. The financial benefits of green buildings are many. They include reduced energy consumption and their associated costs, increased occupant productivity and worker retention, increased market values, and reduced health liability risks due to better indoor air quality. Individual building measures are presented through a tertiary examination of two LEED Certified buildings. These individual benefits are examined further as an integrated building whole, indicating that buildings constructed to LEED standards can save more than 250 per cent of its up-front costs over the course of its 40-year useable life cycle.
Purpose
Green supply chain management is a concept that is gaining popularity in the South East Asian region. For many organizations in this region it is a way to demonstrate their sincere commitment to sustainability. However, if green supply chain management practices are to be fully adopted by all organizations in South East Asia, a demonstrable link between such measures and improving economic performance and competitiveness is necessary. This paper endeavors to identify potential linkages between green supply chain management, as an initiative for environmental enhancement, economic performance and competitiveness amongst a sample of companies in South East Asia.
Design/methodology/approach
For this purpose a conceptual model was developed from literature sources and data collected using a structured questionnaire mailed to a sample of leading edge ISO14001 certified companies in South East Asia followed by structural equation modelling.
Findings
The analysis identified that greening the different phases of the supply chain leads to an integrated green supply chain, which ultimately leads to competitiveness and economic performance. Future research should empirically test the relationships suggested in this paper in different countries, to enable comparative studies. A larger sample would also allow detailed cross‐sectoral comparisons which are not possible in the context of this study.
Originality/value
This paper presents the first empirical evaluation of the link between green supply chain management practices and increased competitiveness and improved economic performance amongst a sample of organizations in South East Asia.
This paper is an inquiry into the circumstances under which the voluntary provision of environmental public goods might be sensible from a firm's point of view. If environmental externalities were the only departure from the economic assumptions of perfect competition, and if no firms had preferential access to superior (low‐cost) stocks of natural resources, firms that volunteered to internalize costs could not survive. But because externalities coexist with other departures from the competitive paradigm, such as asymmetric information and oligopoly competition, firms may find it in their shareholders' interests to provide environmental public goods to a greater degree than required by law. A number of firms, especially in Europe and North America, assert that they are pursuing “beyond‐compliance” environmental policies. From the perspective of a firm's shareholders, it makes sense to pursue such policies if they increase the firm's expected value or if they appropriately manage business risk.
This paper discusses economically rational explanations for such policies. It analyzes the ways in which a firm's chances of financial success in pursuing any one of them are influenced by the firm's market position and organizational capabilities and by the basic structure of the industry in which it competes.
This study adds new insights to the long‐running corporate environmental‐financial performance debate by focusing on the concept of eco‐efficiency. Using a new database of eco‐efficiency scores, we analyse the relation between eco‐efficiency and financial performance from 1997 to 2004. We report that eco‐efficiency relates positively to operating performance and market value. Moreover, our results suggest that the market's valuation of environmental performance has been time variant, which may indicate that the market incorporates environmental information with a drift. Although environmental leaders initially did not sell at a premium relative to laggards, the valuation differential increased significantly over time. Our results have implications for company managers, who evidently do not have to overcome a tradeoff between eco‐efficiency and financial performance, and for investors, who can exploit environmental information for investment decisions.
We examine the role of signaling and of intrinsic benefits in the adoption of the individual elements of the voluntary LEED (Leadership in Energy and Environmental Design) standards for green buildings. We use goodness-of-fit tests on data for all 442 LEED certified buildings and find that neither signaling nor pursuit of intrinsic benefits can independently explain the observed adoption pattern, but that a combination of the two factors can. We also find tentative evidence that the adoption decision is made sequentially: organizations first choose a level of certification (consistent with signaling), and then choose how many LEED elements to adopt given their chosen level of certification consistent with pursuing intrinsic benefits). We relate our findings to some open questions in the literature on diffusion of technology and draw implications for the design and the future development of similar voluntary standards and eco-labels.
The view that adopting an environmental perspective on operations can lead to improved operations is in itself not novel; phrases such as "lean is green" are increasingly commonplace. The implication is that any operational system that has minimized inefficiencies is also more environmentally sustainable. However, in this paper we argue that the underlying mechanism is one of extending the horizons of analysis and that this applies to both theory and practice of operations management. We illustrate this through two principal areas of lean operations, where we identify how successive extensions of the prevailing research horizon in each area have led to major advances in theory and practice. First, in quality management, the initial emphasis on statistical quality control of individual operations was extended through total quality management to include a broader process encompassing customer requirements and suppliers' operations. More recently, the environmental perspective extended the definition of customers to stakeholders and defects to any form of waste. Second, in supply chain management, the horizon first expanded from the initial focus on optimizing inventory control with a single planner to including multiple organizations with conflicting objectives and private information. The environmental perspective draws attention to aspects such as reverse flows and end-of-life product disposal, again potentially improving the performance of the overall supply chain. In both cases, these developments were initially driven by practice, where many of the benefits of adopting an environmental perspective were unexpected. Given that these unexpected side benefits seem to recur so frequently, we refer to this phenomenon as the "law of the expected unexpected side benefits." We conclude by extrapolating from the developmental paths of total quality management and supply chain management to speculate about the future of environmental research in operations management.
This paper empirically investigates the impact of winning a quality award on the market value of firms by estimating the mean "abnormal" change in the stock prices of a sample of firms on the date when information about winning a quality award was publicly announced. We note that the abnormal returns generated by the quality award winning announcements provide a lower bound for the impact of implementing an effective quality award improvement program. Our results show that the stock market reacts positively to quality award announcements. Statistically significant mean abnormal returns on the day of the announcements ranged from a low of 0.59% to a high of 0.67% depending on the model used to generate the abnormal returns. The reaction was particularly strong for smaller firms (mean abnormal returns ranged from low of 1.16% to a high of 1.26%), and for firms that won awards from independent organizations such as Malcolm Baldrige, Philip Crosby, etc. (mean abnormal returns ranged from a low of 1.31% to a high of 1.65%). Winning a quality award also conveys information about the systematic risk of the firm. We find a statistically significant decrease in the equity and the asset betas after the quality award announcement. There is also evidence to suggest that large firms experience negative stock price performance in the second year before winning quality awards, which is followed by a year of positive performance. Small firms experience a positive stock price performance in the second year before winning quality awards but no negative performance before winning quality awards.
When I hear businessmen speak eloquently about the “social responsibilities of business in a free-enterprise system”, I am
reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his
life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned “merely”
with profit but also with promoting desirable “social” ends; that business has a “social conscience” and takes seriously its
responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords
of the contemporary crop of reformers. In fact they are — or would be if they or anyone else took them seriously -preaching
pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have
been undermining the basis of a free society these past decades.
In a departure from the traditional studies of corporate philanthropy that focus on board composition, advertising, and social networks, the authors investigate the financial correlates of corporate philanthropy. The research design controls for firm size and industry while observing firms from a variety of industries. The sample contains matched pairs of generous and less generous corporate givers. The authors find, as hypothesized, a positive relationship between a firm''s cash resources available and cash donations, but no significant relationship between corporate philanthropy and firm financial performance, regardless of whether corporate philanthropy is measured as cash payouts or the aggregate contributions that charities actually receive, and regardless of whether financial performance is gauged using accounting measures or market measures. Whereas the link between available resources and corporate philanthropy is well accepted in the literature on corporate social responsibility, it has been rarely tested and never so definitively found as in this research.
Previous studies of the relation between environmental performance and environmental disclosure have consistently documented a lack of significance. This study examines the relation between 1990 annual report environmental disclosures for a sample of 131 US companies and their environmental performance as based on toxics release data from 1988 (made available in 1990). In contrast to the previous examinations, results indicate that, controlling for firm size and industry classification (two factors previously shown to be related to the extent of environmental disclosure), there is a significant negative relation between performance and disclosure for the sample firms. However, the disclosure level of firms from non-environmentally sensitive industries is more affected by toxic release levels than is the disclosure of firms from environmentally sensitive industries.
This paper estimates the shareholder wealth affects of supply chain glitches that resulted in production or shipment delays. The results are based on a sample of 519 glitches announcements made during 1989–2000. Shareholder wealth affects are estimated by computing the abnormal stock returns (actual returns adjusted for industry and market-wide influences) around the date when information about glitches is publicly announced. Supply chain glitch announcements are associated with an abnormal decrease in shareholder value of 10.28%. Regression analysis is used to identify factors that influence the direction and magnitude of the change in the stock market’s reaction to glitches. We find that larger firms experience a less negative market reaction, and firms with higher growth prospects experience a more negative reaction. There is no difference between the stock market’s reaction to pre-1995 and post-1995 glitches, suggesting that the market has always viewed glitches unfavorably. Capital structure (debt–equity ratio) has little impact on the stock market’s reaction to glitches. We also provide descriptive results on how sources of responsibility and reasons for glitches affect shareholder wealth.