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Shareholder Value Effects of Voluntary Emissions Reduction

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Abstract

The relationship between emissions reduction and firm financial performance has been studied with mixed results. We consider potential sources of this ambiguity by examining announcements of voluntary emission reduction (VER) from 1990 to 2009. We measure the stock market reaction associated with VER announcements to estimate the effects of time, emissions type, and whether the reduction was announced ex ante or ex post. We find that the market reaction to VER significantly decreased over time. The changing nature of the market reaction to VER over time highlights the importance of evaluating the financial impact of any VER in current context rather than relying on past findings. We also find that the market reaction is more positive if the reduction is for greenhouse gas (GHG) rather than other emissions types. In light of the increasing concern with GHGs, this finding should be welcome news for managers. Last, we find a more positive market reaction for VER announcements that are pledges or statements of intent rather than realized achievements of VER. Managers contemplating VER might find benefit (and at least no harm) in announcing their intent to reduce emissions rather than waiting until they have achieved the reduction. This article is protected by copyright. All rights reserved.

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... The signals from the signalers can effectively mitigate information asymmetry in market transactions . Prior literature has emphasized a fundamental principle that signal costs significantly affect signal efficacy because costly signals reduce the possibility of false signaling and attract more attention from signal recipients (Connelly et al., 2011;Jacobs, 2014). Signal costs represent the expenditure of sending signals (e.g. the implementation costs of firm-specific activities). ...
... Additionally, signaling theory proposes that a signal's efficacy is mainly determined by signal costs, which are highly associated with the signaler's characteristics (e.g. organizational resources and capabilities) (Connelly et al., 2011;Jacobs, 2014). This paper untangles the moderating impacts of manufacturing firms' specific characteristics on the servitization-trade credit association in terms of financial slack and service relatedness, which are particularly relevant and important in our research context. ...
... Financial slack can dynamically support firms' new activities or opportunities without reducing the resource supports for other existing projects (Fang et al., 2008). Prior studies have suggested that a signal's efficacy relies on the perception of the signal recipient on the signal's credibility (Connelly et al., 2011) and proposed a basic tenet that signal costs greatly affect signal efficacy (Jacobs, 2014). Firms' financial slack may influence their capacity of absorbing the signal costs, which thus affects the efficacy of servitization as a reliable signal conveyed to their suppliers. ...
Article
Purpose The aim of this study is to empirically test the link between servitization and trade credit in manufacturing firms as well as the boundary conditions of this link. Design/methodology/approach Using a unique dataset of 4,974 observations covering 838 manufacturing firms publicly listed in the United States during 1990–2020, this study examines the impact of servitization on trade credit and the moderating impacts of financial slack and service relatedness based on fixed-effect regression models. Findings The authors find that servitization shows a U -shaped relationship with trade credit. Besides, financial slack negatively moderates this U -shaped relationship whereas service relatedness has no significant impact on this relationship. Originality/value This paper is the first to empirically verify the influence of servitization on trade credit in manufacturing firms based on longitudinal secondary data and signaling theory. The research findings can provide several important theoretical and managerial implications for scholars and practitioners in operations management.
... The DID studies using regressions may not be appropriate for such wide ranges in the abnormal returns of stock performance. However, event studies on stock performance normally also apply non-parametric statistics tests, such as the Wilcoxon signed-rank test to compare the median value, and the Binomial sign test to compare the percentage value of stock performance (Brown and Warner 1985, Hendricks and Singhal 2009, Jacobs 2014. Cumulative abnormal return (CAR) serves as the dependent variable used to measure the average effect of the event for the first mobile digital freight matching platform launch in the U.S., leveraging the event study approach to provide robust outputs. ...
... In the existing event study studies, researchers tend to measure CAR in a relatively short period such as 2 days, 5 days, 10 days, or 20 days Singhal 2003, Jacobs 2014), thus we will measure CAR up to around one trading month since the event day. Consistent with the existing event study research (Brown and Warner 1985, Hendricks and Singhal 2009, Jacobs 2014, we use the t-test to test for the significance of the mean abnormal returns that have adjusted for cross-sectional dependence, Wilcoxon signed-rank test to test for the significance of the median abnormal returns, and the binomial sign test to test whether the percent of negative abnormal returns are significantly different from 50%. ...
... The observations contain 231 trading days between July 12, 2010 (Day -210), and June 8, 2011 (Day 20), including 210 trading days before the event day (the launch date ofMyDAT Trucker Services in the U.S.), the event day, and 20 trading days after the event day. Following the existing studies on stock(Ba et al. 2013, Hendricks and Singhal 2009, Jacobs 2014, Jacobs and Singhal 2017, we measure stock performance by abnormal return, estimated by the market model(Brown and Warner 1985). This represents the proportion of a stock's return not explained by the change rate of the market index for the stock market. ...
Article
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In this paper, we study the disruptive power of the mobile digital sharing economy to the road freight logistics industry. New information technologies, such as the mobile internet, mobile payment methods, and GPS, have enabled platforms to match freight shippers’ demand with carriers’ supply by utilizing the convenience and mobility of smartphones. We empirically study the influence of the emergence of mobile digital freight matching platforms in the U.S. on the profitability and stock performance of two types of incumbent road freight logistics companies: freight arrangement companies (freight forwarders and brokers) and trucking companies (freight carriers). Since the mobile digital freight matching platforms mainly match small and mid‐sized trucking companies with shipping demand, we expect the platforms to introduce interference (direct) competition to traditional freight arrangement companies and exploitation (indirect) competition to large trucking companies, which potentially raises operational challenges for both types of incumbents. We use Difference‐in‐Differences (DID) analyses to study the incumbents’ profitability and the event study method to evaluate their stock performance. We find that after the advent of the mobile digital freight matching platforms in the U.S., the profitability of the traditional freight arrangement companies counter‐intuitively remained unchanged. In contrast, the profitability of the large trucking companies increased. Further, we examine the changes in sales and costs behind these profitability changes. Our dynamic analyses suggest a time lag of the influence of the mobile digital freight matching platforms. Besides, we find that the stock value of the traditional freight arrangement companies received a significant negative shock, whereas the stock value of the large trucking companies showed no significant reaction. This study contributes to understanding the disruptive power of an emerging technology innovation of sharing economy to firm performances in an increasingly competitive and innovative business environment.
... In contrast, proactive ESIs are a firm's ex-ante approaches to preventing any social misconduct among suppliers. Therefore, these initiatives are typically used to reinforce legitimacy, thereby building competitive advantages from the benefits of being a pioneer in the field (Jacobs, 2014;Porter & Kramer, 2006;Roberts, 2003). Focusing on sourcing, examples of proactive initiatives include new sourcing guidelines for improving the working conditions of foreign suppliers (e.g., Starbucks, see Zachary, 1995) or disclosing a list of suppliers to make the supply chain more transparent (e.g., Wal-Mart, see Banjo, 2013). ...
... The proponents of CSR argue that socially responsible practices help firms protect their reputation (Orlitzky et al., 2003), improve operating efficiency through innovation (Porter & Van der Linde, 1995), and create new market opportunities (Klassen & McLaughlin, 1996). However, studies also show negative (e.g., Dam & Petkova, 2014;Hawn et al., 2018;Jacobs, 2014;Lewis and Carlos, 2019), or insignificant (e.g., Arora et al., 2020;Gilley et al., 2000;Mishra & Modi, 2016) market value effects of CSR. Further, some studies find that the stock market reacts differently to different types of CSR initiatives. ...
... In the markets with increasing social awareness like in the United States, investors have been reacting less positively toward CSR over time in the past decades (Flammer, 2013;Jacobs, 2014). As the public has become more socially conscious, investors in more recent periods may consider CSR initiatives as normal activities that most firms perform. ...
Article
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With the advent of responsible business, ensuring social responsibility in sourcing is of interest to both academics and practitioners. In this study, we examine one way of achieving this goal: ethical sourcing initiatives (ESIs). ESIs refer to a firm's formal and informal actions to manage sourcing processes in an ethical and socially responsible manner. While ESIs have been established as an important part of corporate social responsibility, it is unclear whether, how, and when this corporate effort is economically beneficial. We conduct an event study estimating the shareholder value effect of 159 publicly traded firms' ESIs and find that the stock market reacts positively to ESIs in general. We also compare market reactions under different conditions including reactive versus proactive ESIs, and their interactions with initiative timing, firm size, and financial risk. Additionally, we find that ESIs are associated with long-term stock price and operating performance. Overall, our findings clarify the potential economic benefits of corporate ESIs and encourage buying firms to take these initiatives selectively according to business contexts.
... Investors, as signal receivers, interpret the signal as the potential for cost reduction and revenue enhancement for the firm, leading to a positive stock market reaction. Further, as suggested by signaling theory, signaling time (Janney & Folta, 2006), signal contents (Jacobs, 2014;Lam et al., 2016) and signaler's characteristics (Connelly, Certo, Ireland, & Reutzel, 2011;Lam et al., 2016) show that the overall stock market reaction is not significant, cross-sectional analyses indicate that the market reaction is higher for firms with earlier recognition, recognized for demonstration projects (compared to pilot projects), and operating in more-polluting industries. However, the types of PEPs (internal versus external), export intensity, and government ownership of a firm do not significantly moderate the market reaction. ...
... As empirical evidence, Zhang et al. (2017) found that the shareholder value effect of Clean Development Mechanism projects certification in China is negatively associated with time. Based on a sample of 450 US firms, Jacobs (2014) demonstrated that the market reaction to announcements of voluntary emission reduction diminishes over time. Therefore, early recognitions can be interpreted as signals that bring more financial benefits for firms. ...
... The first is Firm size, which is often used as a control variable in previous environmental studies (Doh et al., 2010;Flammer, 2013;Lo et al., 2018). With less attention and monitoring from the public, smaller firms are more likely to surprise the market through environmental announcements by the government (Jacobs, 2014;Jacobs et al., 2010). Second, several event studies have documented that the market reaction is affected by the firms' ...
Article
Firms implement proactive environmental practices (PEPs), and governments in developing countries such as China implement environmental policies such as pilot and demonstration programs to promote these PEPs. However, it remains unclear whether and when firms recognized by such governmental programs improve financial performance. Using a sample of 233 firms recognized by a national Chinese government environmental program, event study is employed to estimate stock market reaction of recognized firms. The Heckman two‐stage procedure is followed to examine the moderating effects. We find that the average stock market reaction is not significant. Cross‐sectional analyses indicate that firms with earlier recognitions, recognized for demonstration projects (compared with pilot ones), and operating in more‐polluting industries have greater market reactions, while types of PEPs (internal versus external), export intensity and government ownership (state‐owned or not) do not moderate the market reaction. This paper provides implications for firms about whether and when they should participate in a government environmental program.
... With its growing popularity in the OSCM literature, the short-term event study method has been employed by researchers to investigate various OSCM topics such as supply chain disruptions (Hendricks and Singhal, 1997;Zhao et al., 2013), environmental management (Jacobs, 2014;Klassen and McLaughlin, 1996), and quality management (Lin and Su, 2013;McGuire and Dilts, 2008). In addition, short-term event studies in OSCM are evolving as a result of advances in asset pricing models and statistical analysis. ...
... The parametric t-test above is the traditional approach to assess the significance of the cumulative abnormal returns and has been used in many of the OSCM event studies (55%) (e.g., Hendricks and Singhal, 1997;Jacobs, 2014;Lin and Su, 2013;McGuire and Dilts, 2008). This approach, though simple, relies on relatively strong assumptions of independence and homoscedasticity among the abnormal returns. ...
... For instance, Kalaignanam et al. (2013) found that, in Customer Relationship Management (CRM) outsourcing, capabilities of the outsourcing firms, distance between the outsourcing firm and the vendor, and the type of CRM process being outsourced moderate the shareholder value of CRM outsourcing. Jacobs (2014) showed that the market reaction to voluntary emission reduction is associated with the time, emissions type, and whether the reduction is announced ex ante or ex post. ...
... As the damage done by climate change increases throughout the world and humanity's reliance on fossil fuels shows only some signs of abating, massive investment is required to achieve the ambitious goal of the Paris Agreement to ensure that the rising global temperature in this century is kept well below 2°C above the preindustrial level (IPCC, 2018). Businesses, the major contributors to anthropogenic greenhouse gas (GHG) emissions, are the key to combating climate change. ...
... Despite the lag between action and outcome, capital market participants are forward-looking, and they are likely to respond to an action taken rather than wait until a reduction in emissions becomes a reality. Based on this logic, existing studies consider a firm's announcement or disclosure of a voluntary climate change program as a proxy for climate change mitigation actions (Fisher-Vanden & Thorburn, 2011;Hsu & Wang, 2013;Jacobs, 2014;Ziegler et al., 2011). Note that a number of studies examine the impact of the actual amount of environmental capital expenditures on firm value. ...
Article
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Although the literature on carbon accounting is growing, studies on the valuation impact of firms’ carbon abatement investment (CAI) are scarce, and the influence of country-specific climate policies is largely underexplored. Drawing on both the benefit and cost perspectives of the resource-based view, we predict that investors’ perceptions of the net benefits of CAI are contingent on national climate policies. Based on a comparative analysis of data from the US, the UK, and Australia, we find that CAI is viewed as value-destroying by investors in countries that do not have a stringent climate change policy. In contrast, CAI enhances firm value in jurisdictions that implement such policies. Additional analyses show that investors also consider the characteristics of CAI (i.e., the size and payback period) and the act and extensiveness of voluntary CAI disclosure when evaluating firm value. Our findings fill important gaps in the literature and have critical implications for policymakers, investors, managers, and other stakeholders who are responsible for the transition to a carbon-neutral economy.
... Connelly et al. (2011) pointed out that the efficacy of a signal depends on the signal receiver's perception of the signal's credibility. A signal is more credible when it is more costly (Jacobs, 2014). Therefore, the presence of financial slack will alter how suppliers interpret the credibility of the CSR signal. ...
... Specifically, CSR performance is more beneficial for SMMEs to gain trade credit if they are characterized with a lower level of financial slack and smaller-sized operations. This result is in line with one of the basic tenets of signaling theory, which suggests that the efficacy of a signal depends on the signal receiver's perception of the signal reliability (Connelly et al., 2011;Jacobs, 2014). For SMMEs operating with less financial slack and smaller firm size, their CSR performance conveys a more costly and thus more credible signal to their suppliers, which is favorable for them to acquire more trade credit from the latter. ...
... As a result, profitability is not significantly improved. Furthermore, there are mixed results in terms of the relationship between the financial performance of firms and their corporate activities in relation to emissions reduction (Jacobs, 2014). Based on a sample of S & P 500 firms from the Investor Responsibility Research Center's corporate environmental profile and Compustat, emissions reduction was found to be beneficial for improving corporate performance as measured by the return on sales (Hart and Ahuja, 1996). ...
... Event study is a research approach for evaluating performance in response to unexpected events within specified periods after the events happen (Fama, 1991). Since its origination by Dolley (1933), this methodology has become a widely accepted research tool in business studies (Brown and Warner, 1985;Jacobs, 2014;Woolridge and Snow, 1990). The definition of the timeline and the calculation of abnormal performance are the keys to the application of the event study approach. ...
Article
The Clean Development Mechanism (CDM) is one of the “flexibility mechanisms” defined in the Kyoto Protocol to deal with global climate change. This paper uses the event study methodology to determine the relationship between corporate CDM adoption and financial performance. We conjecture that implementing CDM projects is beneficial for non-core business returns but not corporate profitability because firms often have an ulterior motive in obtaining direct economic revenue from CDM projects without expending due effort on environmental protection and efficiency improvement. We extract a list of companies with operational CDM projects in China and identify them as the sample group. Using the propensity score methodology, we establish a control group based on estimations using a probit regression model that verifies the factors determining industrial companies’ participation in CDM projects. The control group comprises non-adopters of CDM projects that have a similar propensity score to CDM adopters based on their corporate financial indicators. The results from Wilcoxon signed-rank tests and one-sample binomial tests show that the major positive financial effect of CDM adoption is obtained from the growth of non-core business revenue. The profitability of the adopters is not significantly changed after the CDM adoption. There are no remarkable changes in sales growth after CDM certification.
... Moreover, although CDM brings economic benefits from selling CER credits, its effect on corporate total financial performance is still unclear, as CDM implementation may bring additional operation cost or cause financial responses from shareholders. From the extant literature, the relationship between financial performance and corporate activities on emission reduction has been studied with mixed results (Jacobs, 2014). Some researchers find positive financial effect from emission reduction (e.g., Konar and Cohen, 2001), while there are also other studies observing insignificant or negative association between emission reduction and firm performance (e.g., Fisher-Vanden and Thorburn, 2011;Kroes et al., 2012). ...
... The potential economic benefits from corporate environmental activities for current and future were undetermined in the literature. The financial value of corporate environmental strategies was often examined covering the performance on cost reduction, revenue increases, and improvement in competitive advantage (Jacobs, 2014). ...
... Empirical results of the stock market reactions to corporate environmentally sustainable performance are mixed. Previous research based on US firms reveal positive stock market reactions to the announcements of environmental performance awards [15], environmental business strategies, environmental philanthropy, ISO 14001 certification [16] and negative stock market reactions to voluntary emission reductions [16,27] and environmental crises [15]. However, literature based on Chinese companies support negative stock market reactions to environmental violation events [18], environmental incidents [19], environmental performance awards [21] and CEIs [20]. ...
... However, the market reaction becomes less significant on the day after the event day. Our result is not completely consistent with literature based on US companies [16,27]. Significant positive market reactions to announcement of CEIs were observed in [16]. ...
Article
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Chinese manufacturers, which produce nearly one-fourth of global manufacturing outputs, play important roles in the global supply chains formany products. The Chinese government proposed the "Made in China 2025" plan to help manufacturers upgrade their technology, so that the country will become a green and innovative "world manufacturing power". It is important for researchers, practitioners, and the government to know the benefits and costs of being environmentally sustainable. In this paper, we investigate the effects of environmentally sustainable announcements of Chinese firms in the manufacturing, and the wholesale and retail industry on their stock market performance. First, we find negative market responses, which are significant in scale and statistics. Second, the stock market reactions are different for firms in different industries. Third, the stock market reactions are different in different years. Finally, we control the firm size and the book-to-market ratio with the Fama-French three factor model. The result is highly consistent with the one from the simple market model.
... Still after the authors, the reasoning would have allowed researches on the field to conduct various empirical studies, "among which the event study method represents one of the most popular methodologies adopted in the literature". That would include supply chain disruptions (Hendricks and Sighal, 1997), environmental management (Jacobs, 2014;Klassen and McLaughlin, 1996) and quality management (Lin and Su, 2013;McGuire and Dilts, 2008). ...
Thesis
The association of firms to crimes, condemnable management practices, operational difficulties and / or fails carried out by their partners suggests that negative events occurred in a firm (i.e. source firm) hold the potential to negatively affect others. As firms’ direct and indirect relationships with their partners become less obvious, supply chain risks (March and Shapira, 1987) must be reconsidered to account for this contemporary and possibly hazardous prospect. In addressing this issue, the present dissertation investigates the impacts of negative corporate events to supply chain partners. Throughout three individual but interconnected articles, empirical evidence suggest that beyond the interruption of physical flows, unfavorable circumstances may not be restricted to firms originating them, spreading across their networks. More specifically, based on the premises of the Efficient Market Hypothesis (Fama, Fisher, Jensen and Roll, 1969; Fama, 1970; Jensen, 1978), the utilization of the event study method (Fama, 1970; Brown and Warner, 1980) allowed the demonstration of negative reactions from investors of supply chain partners upon the disclosure of adverse news. In referring to these outcomes, the concept of supply chain contamination is here defined as “the dissemination of negative events through supply chains, negatively affecting not only the market value of customers and suppliers (possibly that of customers of customers and suppliers of suppliers and so on), as well as potentially other dimensions such as corporate reputations, for instance” (Fracarolli Nunes, 2018: 581).Initial theorization of this process is also proposed. The mechanics leading a company to be affected by events originated out of its organizational borders is portrayed in the concept of the inertial effect, illustrated in the image of “the waves caused by a stone that hits the water previously rested” (Fracarolli Nunes and Lee Park, 2016: 292). Within the reasoning of unintended or unanticipated consequences (Merton, 1936), the occurrence of supply chain contamination through the inertial effect is considered a collateral effect. From the intersection of the literatures on supply chain management and the Stakeholder Theory, a new conceptual model is developed. Building on the idea that stakeholders stand for any individual, entity or group that shall either affect or be affected by the operations of a company (Freeman, 1984), the empirical demonstration that investors of a supply chain partner must be affected (i.e. collateral effect) by negative events occurred in or caused by a source firm (i.e. supply chain contamination through the inertial effect), allows the proposition of the concept of incidental stakeholders, here defined as “stakeholders of stakeholders, which, as such, may not be aware of their links with other companies, or even not consciously willing to take the risks associated with such a subsidiary connection” (Fracarolli Nunes, 2019: 4). In this sense, the investigation of 30 cases classified in 5 distinct categories (environmental disaster, corporate social and environmental irresponsibilities, operational failure, corporate fraud and corruption) is expected to offer new perspectives on the structural risks associated to supply chains. Along with the theoretical discussions, practical utilizations are approached, as well as avenues for future inquiries.
... These outputs align with both the primary goals set by the focal firms in this study and the widely accepted environmental improvement goals in the literature (Dhanorkar et al., 2017;Jacobs, 2014;Jacobs et al., 2010). The number of inputs and outputs meets the "rule of thumb" ...
Article
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This research examines the influence of a firm's portfolio of environmental projects on its ability to efficiently improve environmental outcomes. The data comes from Chinese automotive suppliers of a western manufacturer and consists of 154 environmental project portfolios that contain 614 environmental improvement projects as well as firm-level data from Dun & Bradstreet. A data envelopment analysis (DEA) is used to estimate the firms' efficiency in transforming resources into environmental outcomes. Then an econometric analysis evaluates the impact of the portfolio effect (i.e., environmental project portfolio composition) on the firm's efficiency in improving the environment. The empirical results show that when firms reduce the heterogeneity in the types of environmental projects in their portfolios (i.e., a more focused portfolio), they can more efficiently improve environmental outcomes. However, firms may want to introduce diversity in the types of environmental projects in their portfolio (i.e., reducing the focus).The analysis shows that more environmentally capable firms can increase the diversity of the projects in their portfolios without negatively impacting outcomes. In addition, firms can better manage diversity in their portfolios when they balance socially oriented projects with technically oriented projects. This study contributes to the theory of project portfolio roles in improving environmental outcomes and offers several novel insights for project portfolio managers working to improve environmental outcomes with limited resources.
... In general, shareholder value that reflects firms' profitability and competitiveness is positively associated with firm performance and public relations (Higgins et al. 2011;Portney 1994;Tsikriktsis 2007;Zhang et al. 2017). Thus, an increase in market value and stock prices of environmentally regulated companies might appear (Hibiki 2010;Jacobs 2014;Nehrt 1996). Although the study noted above examines the capital market effect of environmental performance and regulations, they focus on pollution governance, but ignores the association between climate policy and corporate performance. ...
Article
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China’s newly announced carbon neutrality goal manifests its determination to advance green and low-carbon development. The country aims to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060. Consequently, guidelines and action plans have been actively deployed and issued. The carbon neutrality commitment (vision) and its detailed deployment (action) would contribute to climate change mitigation and corporate market value. Therefore, we categorize the carbon neutrality-related events and analyze their impacts on the stock market from July 2020 to March 2021. The main findings are as follows: (1) The action event have increased the carbon neutrality-related stocks by 0.04%, while that of the vision event is – 0.003%, indicating that investors’ confidence increases when the carbon neutrality commitment is accompanied by specific and detailed guidelines. (2) The impact of carbon neutrality announcement becomes more positive and significant after related events occur repeatedly. (3) Carbon neutrality-related power industry and state-owned enterprises are potential beneficiaries of this decarbonization goal. Our study supplements the literature on climate policy and its economic value, potentially contributing to the next stage of global decarbonization.
... As discussed earlier, in reference to its recent use in HBR CEO ratings, CSRHub is a repository of firm-level ratings of corporate social responsibility encompassing components used in recent academic research addressing endogeneity in the relationship between sustainability and financial performance (Arminen et al., 2018;Chen and Ho, 2019;Jacobs, 2014). CSRHub aggregates data from an array of major socially responsible investment (SRI) research data sources. ...
Article
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Purpose Top-level operations leaders can drive organizational performance across a broad range of pro-environmental objectives. The authors’ focus is on understanding which specific leadership competencies are most conducive to green performance outcomes. The authors further consider the influence of Lean thinking on the importance of these competencies. Design/methodology/approach In study 1, of a multi-method investigation, the authors interview executive search professionals, on how green objectives impact top-level operations leadership searches. In study 2, the authors adopt a multi-attribute choice task to examine how Lean thinking impacts competency preferences. Finally, in study 3, the authors merge secondary data on corporate environmental performance with a survey of top-level operations managers’ assessments. This triangulating multi-method approach provides an integrated and holistic view into these dynamics. Findings Results show particularly strong associations between resource and energy management outcomes and the specific leadership competencies of stewardship. This set of leadership competencies play the greatest role when Lean thinking is deficient. Research limitations/implications While the authors’ focus is on top-level operations managers, and their under-explored impact on environmental performance, such an impact represents only one dimension of corporate social responsibility (CSR) that these managers may be critically influencing. Practical implications The associations uncovered in this research suggest critical leadership characteristics to consider in developing and recruiting top-level operations managers, when specific environmental objectives exist. Social implications The study’s findings draw attention to the importance of leadership characteristics among influential corporate decision-makers, instrumental in the environmental progress of firms. Originality/value This work fills a critical gap in the authors’ understanding of how top-level operations managers influence green corporate objective, and how their contributions are valued across settings.
... Similar to prior event studies, we present a five-day event window, including two days before the event day, the event day, and the two subsequent trading days (Jacobs 2014, Kalaignanam et al. 2013. Averaging the abnormal returns over the sample of N announcements for day t results in the mean abnormal abnormal return AR t for day t: ...
Article
Blockchain is a prominently discussed technology in operations and supply chain management and firms increasingly engage in blockchain initiatives. Yet, an understanding of the technology's financial value remains elusive. Based on 175 firm announcements between 2015 and 2019, we conduct an international event study to estimate the impact of blockchain initiatives on the market value of the firm. We empirically demonstrate that blockchain announcements are associated with a significant average abnormal return of 0.30% on the announcement day, and that there are indications of positive long-term effects on shareholder value. We further demonstrate how blockchain use case, project, and firm characteristics affect the stock market reaction. Specifically, we find that the stock market reaction to blockchain announcements is less positive when blockchain is used to trace physical objects or to share sensitive data, providing empirical evidence for the risk associated with current challenges in the design of blockchain use cases. Our results also suggest that the involvement of an external information technology service provider in a blockchain project attenuates the positive stock market reaction. Interestingly, more innovative firms do not experience a stronger stock market reaction to blockchain announcements. Leveraging the international scope of our sample, we further shed light on how the firm's competitive (i.e., industry factors) and macro environment (i.e., country factors) affect the stock market reaction. Our findings indicate that the industry's R&D intensity and the country's data restriction level play a crucial role in driving the value attributed to blockchain initiatives.
... Furthermore, pro-environmental initaives such as emission and waste reduction policy and strategy of industrial firms are positively viewed by the shareholders of the firms (Flammer, 2013;Lyon & Shimshack, 2015). That is to say, corporate brands with emission and effluent reduction initiatives attract more investment from shareholders, which in turn, facilitates the future growth-related initiatives of the brand (Ba et al., 2013;Jacobs, 2014). Based on the foregoing, the following hypothesis is suggested: H 2 : The greater the emission reduction ability of a firm is, the higher the corporate brand value will be. ...
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Given ever-increasing engagement of firms in corporate environmentalism over the past few decades, a multitude of studies investigated the antecedents and consequences of corporate environmentalism. Extant studies exploring the consequences of corporate environmentalism predominantly measured its effects on firm performance. However, to the best of our knowledge, no study thus far has explored whether or not the key pro-environmental initiatives pertaining to corporate environmentalism carried out by industrial firms have any effect on market-based assets, namely, brand value. This study endeavored to address this gap in the literature. Drawing on natural resource-based view of the firm (NRBV), this study argued that industrial firms committed to corporate environmentalism reap rewards in the form of higher brand value. This study investigated three salient areas of corporate environmentalism, namely, environmental innovation, efficiency in using natural resources and emission reduction. The findings of this research demonstrate that industrial firms that outperform in environmental innovation, use fewer natural resources, and reduce emission have a higher brand value. Interestingly, while environmental innovation and efficiency in using natural resources contribute fairly equally to brand value, ability to reduce emissions contributes the least to brand value creation.
... However, the extant literature has not provided a nuanced investigation that considers all three scopes of emissions (Figge and Hahn, 2012;Mahdiloo et al., 2015;Mejías et al., 2019). While studies focusing on manufacturers are plentiful (e.g., Lee, 2011;Lenzen et al., 2007), investigations into other stakeholders of the supply chain, such as customers, suppliers (Jira and Toffel, 2013), shareholders (Jacobs, 2014) or boards of directors (Eccles et al., 2014), are relatively scarce. In the present study, we address these shortcomings by investigating a company's carbon reduction efforts and their consequences with respect to all three scopes of emissions, as well as the financial implications of these emissions. ...
Article
In recent years, companies have increasingly been taking measures to reduce their carbon footprint to minimize environmental impact. However, research that looks at factors that influence carbon emissions is scarce. We address this gap by empirically examining the impact of internal and external initiatives on firms’ carbon footprints, as captured by their Scope 1, 2 and 3 emissions. Using secondary data collected from CDP (formerly the Carbon Disclosure Project), we carry out an inductive analysis to understand the role of some of the more commonly adopted practices for carbon footprint reduction by non-financial companies in the Global 500 list, which represents the largest companies by market capitalization. Specifically, we investigate factors contributing to internal and external decarbonization efforts in a company’s supply chain, and how they affect emissions and financial performance outcomes. Consistent with past sustainability research, we include financial and environmental motives as key considerations for assessing the usefulness of carbon reduction practices. However, we find limited support for the factors that we hypothesized to influence carbon footprint reduction and economic benefits, and most firms pursuing carbon reduction initiatives were yet to see the effectiveness of the initiatives. All internal initiatives, except the disclosure scores, were positively associated with Scope 1 emissions. The influence of supplier engagement on Scope 3 emissions was significant, but non-significant on Scope 1 and Scope 2 emissions. As such, rigorous and comprehensive reporting about sources and the management of emissions do not necessarily translate into lower emissions by external supply chain partners. Finally, reduction of emissions per se did not lead to superior financial performance. Theoretical and managerial implications of these results are discussed.
... Our exploration of the effects of disclosing SMA information on consumer attitude and purchase intention not only adds to this literature but also complements prior research on the risk and cost reduction benefits of sustainable supplier management by detailing how SMA disclosures can positively affect consumers' attitude and purchase intention. Second, our work also contributes to the broader literature on the performance benefits of firms' CSR engagement (e.g., Flammer, 2013;Jacobs, 2014;Srivastava, 2007). Most previous studies adopted broad definitions of CSR as a unified variable (e.g., Godfrey et al., 2009;Servaes & Tamayo, 2013). ...
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Stakeholders increasingly put pressure on firms to ensure their suppliers' adherence to corporate social responsibility principles and standards. A firm's supplier monitoring activities (SMA) are, thus, central to achieving supply chain transparency. In an effort to help build a business case for SMA, this research explores the effect of SMA disclosures on consumers' attitude toward the firm and purchase intention. In so doing, we also examine how consumer attitude and purchase intention vary as a function of SMA disclosure characteristics. The results of three behavioral studies reveal more positive consumer attitude and higher purchase intention when a firm discloses that its supplier monitoring extends to lower‐tier suppliers (SMA depth) and the firm monitors its lower‐tier suppliers directly rather than relying on its first‐tier suppliers or third parties to do so (lower‐tier supplier monitoring mechanism). Greater SMA breadth—monitoring both suppliers' social and environmental activities—in turn, is not associated with more positive consumer attitude and higher purchase intention. Further, attitude toward the firm mediates the relationship between SMA disclosure characteristics and purchase intention. Collectively, these findings underline that consumers value firms' SMA and point toward an economic rationale for a firm's transparency regarding its supplier monitoring efforts.
... However, extant literature is limited in providing such a nuanced investigation considering all three scopes (Figge and Hahn, 2012;Mahdiloo et al., 2015;Mejías et al., 2019). In addition, while studies focusing on manufacturers are plentiful (e.g,, Lee, 2011;Lenzen et al., 2007), investigations into other stakeholders of the supply chain, such as customers, suppliers (Jira and Toffel, 2013), shareholders (Jacobs, 2014) or boards of directors (Eccles et al., 2014), are scarce. In the present study, we address these shortcoming by investigating a company's carbon footprint across all three scopes of emissions and analyzing the financial implications of emissions. ...
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In recent years, companies have been taking measures to reduce their carbon footprint to minimize environmental impacts. However, investigations are scarce that look at factors and motivations that influence carbon emissions. We address this area of research by considering the impact of internal and external initiatives on firms' carbon footprint, as captured by their Scope 1, 2 and 3 emissions. Taking ecocentrism as our theoretical anchor, which purports that firms consider superior environmental performance as a precondition to conducting business, we also assess the impact of firms' carbon footprint on ROA. Using secondary data collected from CDP (formerly the Carbon Disclosure Project), we carry out an inductive analysis to understand the motivation and approaches for carbon reduction by non-financial companies in the Global 500 list, which represents the largest companies by market capitalization. As such, we investigate factors contributing to internal and external decarbonization efforts in a company's supply chains, together with the ensuing emissions and financial performance consequences. The study finds limited evidence of reduction in carbon footprint or economic benefits with respect to the factors hypothesized to aid in decarbonization. Theoretical and managerial implications are discussed.
... Our exploration of the effects of disclosing SMA information on consumer attitude and purchase intention not only adds to this literature but also complements prior research on the risk and cost reduction benefits of sustainable supplier management by detailing how SMA disclosures can positively affect consumers' attitude and purchase intention. Second, our work also contributes to the broader literature on the performance benefits of firms' CSR engagement (e.g., Flammer, 2013;Jacobs, 2014;Srivastava, 2007). Most previous studies adopted broad definitions of CSR as a unified variable (e.g., Godfrey et al., 2009;Servaes & Tamayo, 2013). ...
... Beyond the scandal itself, we also draw from the responsible sourcing literature. Responsible sourcing has been examined from a variety of research perspectives including conceptual (e.g., Carter andJennings 2004, Locke 2013); analytical modeling (e.g., Baddam 2015, Huang et al. 2017); and empirical estimation (e.g., Jacobs andSinghal 2017, Preuss 2009). Topics considered include the following: supplier hiding of unacceptable practices or conditions (Plambeck and Taylor 2016); publication of supplier lists (Kalkanci and Plambeck 2018); supply chain visibility (Kraft et al. 2017); supplier audit strategies (Caro et al. 2018); sourcing strategies to reduce the impact of risky suppliers (Guo et al. 2016); contract design to mitigate supplier responsibility risks (Porteous et al. 2015); and supplier certification (Chen and Lee 2016). ...
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This paper provides empirical evidence on the effect of the September 2015 Volkswagen diesel emissions scandal on the stock prices of publicly traded firms in the global automotive ecosystem. We focus on both the supply chain partners of VW – tier‐1 suppliers; tier‐2 suppliers; and business customers – and three groups of firms that are not VW supply chain partners – other motor vehicle manufacturers; parts manufacturers not identified as VW suppliers; and wholesalers, retailers, and rental agencies not identified as VW customers. We find that tier‐1 suppliers of direct material to VW suffered a mean stock price reaction of ─2.69% in the week following the scandal, but this effect varied by region. European suppliers were the most impacted with a mean stock price reaction of ‒5.52%. Suppliers with larger revenue dependence on VW experienced greater negative stock price reactions, as did suppliers of components for engines and/or emissions systems. Non‐VW parts manufacturers experienced a positive effect. We find a mean stock price reaction of ─5.28% to VW’s European customers, but no significant effects for non‐VW customers. European motor vehicle manufacturers experienced a mean stock price reaction of ‒7.60%. Our results suggest that firms should not just focus on selecting and monitoring responsible suppliers but also apply some of the same principles to developing responsible customers. Our work also has implications for industry groups, regulators, and legal systems, entities that have the resources and capabilities to effectively monitor large firms to reduce illegal or irresponsible behavior such as the VW scandal.
... Il en ressort un constat important : l'atteinte d'une meilleure performance environnementale s'avère être une stratégie coûteuse que les actionnaires ne semblent pas apprécier et valoriser. Les résultats sont convergents avec ceux obtenus par Hassel et al. (2005), Jacobs et al. (2010), Jacobs (2014), Fernando et al. (2017) et Baboukardos (2018, qui tendent à confirmer un lien négatif, et significatif, entre la performance environnementale et la valeur de l'entreprise. La réaction négative des actionnaires peut être expliquée par le fait que l'amélioration de la performance environnementale nécessitera des investissements considérables, et par conséquent, réduira les profits de l'entreprise à court terme. ...
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L’article analyse la relation entre communication environnementale et performance boursière en prenant en considération l’effet modérateur de la performance environnementale. Cette relation a donné lieu à de nombreuses publications académiques et empiriques qui aboutissent à des résultats contrastés. En effet, la divulgation environnementale est critiquée par les parties prenantes dans la mesure où sa finalité est uniquement la recherche de légitimité pour assurer la survie de l’entreprise. Ceci les conduit à s’interroger sur la crédibilité perçue des informations environnementales publiées volontairement par les entreprises. Les auteurs abordent cette question importante en s’appuyant sur une recherche conduite auprès de 91 entreprises françaises, qui met en avant le rôle de la performance environnementale comme facteur clé conditionnant les bénéfices qu’une entreprise peut espérer tirer d’une politique active de communication environnementale auprès des actionnaires.
... The paper shows that, even with a simple model, the interplay between these strategies results in a non-trivial equilibrium.Kroes et al. (2012) also analyze different levers of compliance and their effect on firm and environmental performance in an empirical study. In other empirical work,Jira and Toffel (2013) analyze under what conditions suppliers are more willing to share their emissions information with buyers in an attempt to reduce emissions throughout the supply chain,Jacobs (2014) shows that voluntary emissions reductions can create shareholder value, while Fabra andReguant (2014) show that emission costs are almost completely passed through to electricity prices. ...
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The electric power industry is undergoing dramatic change driven by rapid technological transformation, concern over climate change, and evolving market structures. As a result, there is a need for new models to help the industry better utilize resources in a time of increasing uncertainty and to help government policy makers better understand the impacts of their regulatory decisions. We provide a structured review of the operations research and management science literatures to describe the current operational and policy issues in the electric power industry, with a particular focus on issues surrounding electricity market design, renewable integration, effects of climate policy on electric power infrastructure, rise of electric powered vehicles, energy storage, and the growing interdependence between natural gas and electric power sectors. We identify the current research frontier and classify the existing research into clusters with respect to managerial issues addressed. We offer a forecast for where the electric power industry is going and describe some important public policy issues. Finally, we highlight research opportunities and discuss how the management science community can contribute by considering the interaction between operational considerations and electric power policy. This article is protected by copyright. All rights reserved.
... We use the event study approach to estimate financial effect of the announced adoption of industrial waste recycling. This methodology has been a useful tool to estimate the financial reactions of management actions as events (Ba et al., 2013;Jacobs, 2014). Using this approach, we take corporate adoption of industrial waste recycling as an event and compare financial performance outcomes between the adoption and expected non-adoption situation. ...
... Moreover, marketbased measures tend to be leading indicators, whereas accounting measures tend to be lagging indicators. Prior research has examined the business value of environmental performance in terms of the market's response to reduced emissions, certification, and corporate initiatives such as philanthropic activities or the use of renewable energy (e.g., Jacobs, 2014;Jacobs, Singhal, & Subramanian, 2010). ...
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Using the natural resource-based view (NRBV) and signaling theory, we conducted an event study using the Fama-French four-factor (FFM4) model to determine how shareholders react to company announcements about adopting information technology (IT) to address environmental issues. We found that green IT announcements generate positive abnormal returns and increase share trading volume. Initiatives that use IT to support decision making (ITDSS) cause positive stock market reactions. Firms with good environmental performance records enjoy positive market returns from ITDSS and direct IT assets and infrastructure (ITASSETS) announcements. In contrast, shareholders react negatively to announcements regarding sustainable products and services (SPDTSVC). Combining the NRBV with signaling theory provides deeper theoretical insights than either theory alone. The findings could serve as the basis for further research and theory development on the different types of green IT and impacts on market value. The results help explain how firm characteristics and different types of green IT announcements impact market value, and they have significant implications for how firms plan and allocate their resources to support green initiatives. Acknowledgement: We thank World Future Foundation (Singapore) for their encouragement and support to this work. This research was supported by Singapore Ministry of Education Academic Research Fund Tier 1 under WBS R-314-000-095-112.
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The number of companies with highly ambitious carbon emission targets is increasing rapidly. So‐called science‐based emission‐reduction targets (SBTs) are aligned with the aim of the Paris Climate Agreement to limit global warming to below 2°C and preferably to 1.5°C. These voluntary corporate emission targets are substantially more challenging than companies’ prevailing reduction objectives, because climate science guides the target setting. By 2021, more than 2200 companies had publicly engaged in SBTs, covering more than a third of the global market capitalization. The number of participating firms has essentially doubled every year since the first SBTs in 2015. Despite this increased empirical relevance, the impact of SBTs on firm outcomes remains unclear. Notably, their effect on corporate financial performance (CFP) is unknown. The present study addresses this research gap by empirically examining the relationship between corporate carbon emission performance (CCP) and CFP of firms with SBTs from 2015 to 2020. The cross‐country panel comprises 2014 observations of 465 firms. Our findings indicate a positive association between CCP and CFP for firms engaging in SBTs, implying a positive relation between decarbonization efforts and financial results. We thereby advance research on the important question of when it pays to be green. On a practical level, we provide transparency on the effects of SBTs for managers and climate‐change advocates.
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Climate change is a major global risk and a key driver for greenhouse gas (GHG) emissions reduction. Yet, firms’ internal emissions reduction may create a leakage leading to higher emissions in the supply chain. The related literature suggests that the pollution haven hypothesis explains such emissions leakage. In contrast, we explore an alternative reason for supply chain leakage, which is related to optimization of supply chain activities and supply chain innovation. Based on panel data from Bloomberg Environmental, Social, and Governance (ESG) and Bloomberg Supply Chain (SPLC), we estimate our models at a dyadic (i.e., firm and supplier) level using two‐way cluster‐robust standard error, treating various sources of endogeneity. We find empirical evidence of a supply chain leakage effect—a higher level of a supplier's emissions is associated with a lower level of a firm's internal emissions. More importantly, the supplier's innovation can be a major reason behind the leakage; the supply chain leakage effect is stronger when a supplier is more innovative. Furthermore, the role of innovation is strengthened when a supplier invests in eco‐innovation and has technological capabilities similar to those of the focal firm. Our findings suggest that supply chain leakage may not be completely driven by the pollution haven effect, but instead is associated with supply chain optimization and innovation that may be beneficial in the long run. This article is protected by copyright. All rights reserved
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Many parts of the world are experiencing extreme weather events, energy poverty, food insecurity and lack of access to basic healthcare. Moreover, concerns over socioeconomic, gender and racial inequalities are growing. These socially relevant issues are ripe for analysis and improvement using an operations management lens. In this paper, we review some of the relevant research advancements made in the last decade, and identify future research directions on these important topics. In particular, we focus on papers related to sustainable planet (renewable energy, environmentally and socially responsible operations, regulation‐driven operations), agriculture and public health. For future research directions, we discuss the role of innovative business models and disruptive technologies, such as AI and blockchain, in addressing these pressing issues. This article is protected by copyright. All rights reserved
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Many nations have committed to achieving carbon neutrality to combat climate change, but little is known about its drivers at the micro level and implications for firm performance and supply chain management. To address the knowledge gap, this research conducts case studies of seven early movers in the initiative by exploring the key drivers, influential stakeholders and effects of institutional pressures. We find four major drivers: ‘customer enforcement’, ‘sustainable business value’, ‘environmental legitimacy’ and ‘competitive pressures’. Customers and competitors were the most influential external stakeholders. Shareholders and top management with intrinsic environmental values, being internal stakeholders, played pivotal roles in a proactive move to carbon neutrality when there was limited regulatory pressure. The early movers believed in the long‐term economic benefits of transitioning to carbon neutrality. We also identify the implications of carbon neutrality initiatives for supply chain management. Based on the research findings, we develop a decision support framework to guide firms in transitioning towards carbon neutrality in a multi‐tier supply chain context.
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Government trade actions are an increasing source of supply chain risk. This research provides empirical evidence of the stock market reaction to trade actions against a targeted firm on other firms in the targeted firm's supply chain eco‐system. We test our hypothesized stock price effects using the case of the 2018 US government ban on US firms from supplying to ZTE, a Chinese telecommunications manufacturer. We estimate the ban's effects on ZTE's tier‐one US and non‐US suppliers, as well as the upstream and downstream supply chain propagation effects by considering ZTE's tier‐two suppliers and business customers. We also estimate impacts to ZTE's competitors. We find that tier‐one US suppliers experienced a stock price effect of −3.33% following the ban, and the reaction was more negative for those suppliers more dependent on ZTE for revenues. We find a stock price effect on tier‐two suppliers of −0.40%, but an insignificant effect on non‐US tier‐one suppliers. Business customers experienced a stock price effect of 0.66%, and the competitors' stock price effect was 1.34%. The reversal of the ban 4 weeks later resulted in a stock price effect of 1.56% for tier‐one US suppliers, 1.72% for tier‐one non‐US suppliers, and 1.35% for competitors. The 2018 ZTE trade ban by the US government resulted in significant market value losses (median −3.33%) for ZTE's US suppliers, but not for its non‐US suppliers. The reversal of the ban 4 weeks later resulted in significant market value gains (median 1.56%) for ZTE's US suppliers, but the gains were not sufficient to offset the losses incurred by the ban. Policymakers and regulators need to be sensitive to the potential market value gains and losses due to government trade actions for both domestic and non‐domestic firms, and supply chain managers and investors need to be aware of the magnitude of the impacts.
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Purpose Whilst the relationship between corporate social responsibility (CSR) and corporate financial performance has been well documented, CSR has rarely been studied from the perspective of corporate poverty alleviation. This study aims to test whether participation in targeted poverty alleviation (TPA) affects firms' market value and to explore how the magnitudes of market value vary in different CSR environments. Design/methodology/approach Based on recent Chinese TPA initiatives and on 108 TPA announcements of Chinese-listed firms from 2016 to 2020, this study adopts an event study method to investigate the impact of firm's TPA announcements on the firm's market value. Then, the authors construct a cross-sectional regression to analyse different CSR factors that may affect market reactions. Findings The results demonstrate that TPA announcements can increase a firm's overall market value. Additionally, the results show that TPA way and firm ownership significantly moderate the market reaction, namely the positive reaction is more significant when the TPA announcements involve charity poverty alleviation rather than industrial poverty alleviation and for privately owned firms rather than state-owned firms. Practical implications The empirical results help TPA practitioners obtain a nuanced understanding of whether and when to participate in poverty alleviation is worthwhile. This study also provides a reference for poverty alleviation work in countries with similar backgrounds. Originality/value This study not only provides empirical evidence for the consequences of poverty alleviation behaviour of firms in developing countries, but also complements the field of CSR research in developed countries.
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Carbon neutrality and resilience are two of important goals pursued by supply chains today. This study seeks to determine how carbon footprint reduction (CFR) can be achieved in a resilient supply chain from a process integration perspective. Based on contingency theory, we employed the decision-making trial and evaluation laboratory (DEMATEL) approach to examine the critical influencing factors of process integration using evaluations from academic and professional experts. Our findings reveal that, first, at the strategic level, supply chain collaboration (SCC) and supply chain agility and responsiveness (SCAR) have the highest contributions to process integration. Second, process and control risks have the highest contributions in supply chain risk management; herein, collaborative planning, forecasting, and replenishment (CPFR) holds the highest contribution in the SCC, visibility and velocity have the highest contributions in the SCAR, and supply chain efficiency holds the highest contribution in supply chain flexibility (SCF). Finally, CPFR has a significant influence on both supplier and customer engagement, with supply chain intelligence influencing customer engagement in the SCC. Both the standardisation and parallel processes influence supplier spending in the SCF. These findings provide a new conceptual framework for empirical research and an action plan for supply chains to pursue carbon neutrality.
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In response to consumers' growing interest in how products are sourced, produced, and distributed, organizations are increasingly transparent about their supply chain sustainability practices. Supply chain transparency (SCT) efforts are intended to signal positive information about the company to consumers but the benefits are often unclear, especially when consumers receive multiple, but mixed signals that include negative events. We draw on signaling theory to explore how consumers develop impressions of a company's products based on different evaluative dimensions: the positive integrity signal of SCT and the negative capability signal of a product recall. The incongruent signal set creates ambiguity for consumers in assessing product quality and subsequent purchase decisions. We develop two scenario‐based experiments to test aspects of interdimensional signal incongruence. Experiment 1 investigates the magnitude of signal incongruity by considering combinations of different levels of SCT and product recall severity. Experiment 2 investigates the temporal effect of the incongruent signals, considering the restorative effect of SCT after a product recall signal has been received. While product recall signals are salient for consumers in shaping perceptions of product quality and purchase intentions across both experiments, we demonstrate the strategic value of SCT as a positive integrity signal to consumers. Disclosing sustainable supply chain initiatives to consumers can have a positive impact on building a relationship with consumers. This form of transparency helps at least partially shield firms from negative events such as a product recall. Firms should think about developing transparency about their sustainable supply chain practices as a strategic initiative to protect against, and recover from, adverse events (exemplified as a product recall in this research).
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The manufacturing location decision is inherently complex, resulting in supply chain tradeoffs between high-cost and low-cost manufacturing locations. Optimizing this decision can result in a firm's ability to be more profitable. Using the eclectic theory of international production, we use a short-term event study to investigate the impact on shareholder wealth after firms announce their manufacturing location decision. Our study uses 329 manufacturing location announcements and offers a comparative analysis to investigate the stock price impact for U.S. firms (n = 100) and foreign firms (n = 229) reshoring, relocating, or expanding manufacturing operations in the U.S. We find that there is a significantly more positive abnormal stock market return when U.S. firms announce the U.S. as a manufacturing location compared to when foreign firms make similar announcements. In addition, we offer specific conditions under which U.S. and foreign returns will be higher or lower than average, providing insight for managers, investors, and legislators.
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Purpose The purpose of this study is to examine the relationships between changes in water efficiency, profit and risk for firms in the global Consumer Packaged Goods industry. This study also aims to consider the moderating effect of operational efficiency on those relationships. Design/methodology/approach Using a sample of 155 firms with annual corporate social performance and financial performance data from Bloomberg for the years 2010–2019, this study employs first-differencing panel regression models to obtain our results. Findings This study finds strong evidence that operational efficiency moderates the relationships between water efficiency, profit and risk. For operationally efficient firms, increasing water efficiency increases profit and reduces risk. But for firms that are not operationally efficient, this study finds the opposite effects. These findings suggest a threshold level of operational efficiency that firms should achieve before they can reap financial benefits from increases in water efficiency. Originality/value Despite the increasing importance of water efficiency as a measure of corporate social performance, its effects on financial performance are not well studied. The relationship between operational efficiency and water efficiency has also not been examined. This work provides empirical evidence to better understand these important relationships. The major implication for managers is that operational efficiency is a foundational capability that should be developed before focusing on efforts to improve water efficiency. For operationally efficient firms, improvements in water efficiency can be an important mechanism to increase profitability and reduce risk.
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Business model innovation by manufacturing firms, through the addition of services to the core product offerings, has been steadily on the rise. However, this can pose risks for the firms’ long-term viability and profitability. Here, we examine the short-term financial effects of the sale of different product-service combinations. We use the event study methodology to investigate the stock market reaction to 1025 new contract announcements by 41 large manufacturers from 1987 to 2016.679 of these announcements involve the sale of standalone products, while the remaining 346 are product-service deals which we classify as low-, medium- or high-risk depending on whether they involve the provision of product-oriented (or smoothing) services, use-oriented and adapting services, and result-oriented (or substituting) services, respectively. Our results indicate that equity investors react positively to announcements of low-risk service deals and pure product sales. In contrast, we do not find an overall significant market reaction to announcements of medium- and high-risk service deals, suggesting that shareholders are not generally confident in the value creating potential of these types of services. However, post-hoc analysis suggests that the abnormal returns to service deals are affected by both firm-specific (financial leverage and service infusion level) and contract-specific (duration and value) factors. We explain these findings by considering the complexities characterizing these types of services and the general lack of transparency in the agreed terms and pricing of service contracts.
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Firms dread product recalls. Consequently, firm leaders may take steps to avoid recalls when possible, or to avoid the blame for them when there is someone else to blame. We analyze how the appointment of a new chief executive officer (CEO) for a firm in the consumer product industry influences the hazard of subsequent recalls initiated by that firm. Using 25 years of consumer product industry data, including 125 publicly traded firms that experienced 307 new CEOs and 584 voluntary recalls from 1992 to 2016, we find a unique recall pattern following new CEO appointments. The hazard of a recall is high immediately following a new CEO appointment, and then decreases significantly until the next CEO is appointed. We contend that the high hazard of a recall early in CEO tenure may be due to attribution of blame to the prior CEO. We find evidence to support this contention by showing that the increase in recalls is even higher when the prior CEO was forced out. We also propose that the low hazard of a recall later in CEO tenure may be explained by recalls that can be more easily hidden, allowing them to go unannounced. We find evidence supporting this contention by showing that the decrease in recalls late in a CEO’s tenure is stronger when recalls are more discretionary. We conclude with one firm governance recommendation and four regulatory policy recommendations for the Consumer Product Safety Commission.
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The content of climate change disclosures of large, global companies evolved from 2007−2016. Within that window, the same set of firms started measuring and disclosing their supply chain carbon emissions. Does carbon footprinting influence the nature and content of a firm’s disclosure on the climate change risks that are expected to affect its business? We explore this question using more than 10,925 climate change disclosures collected by the CDP (formerly the Carbon Disclosure Project) from 2,003 firms worldwide. We use singular value decomposition and text‐similarity scores to quantitatively examine the content of the CDP disclosures from 2007−2016. Using fixed‐effects and dynamic panel models, we find that measuring supply chain carbon emissions (Scope 3) explains a substantial shift in the content and nature of the disclosures. We find no evidence that measuring and disclosing direct emissions (Scope 1) are associated with substantial changes in the content of the disclosures. One explanation for this is that most of the climate change‐related risks are in the supply chain, not within the company boundaries of large, global firms. Our results show the importance of encouraging firms to voluntarily measure their supply chain carbon emissions if they are not yet aware of their contribution and exposure to climate change. Our work shows that firms’ response to climate change is dynamic, and it may take a decade to detect these shifts.
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Social sustainability has emerged as a key determinant in supplier selection. However, firms may approach social sustainability in varying ways such as investments in employee welfare or philanthropy. Little is known about how supply chain managers consider these individual dimensions when making sourcing decisions. Therefore, this research decomposes social sustainability into dimensions of employee welfare and philanthropy to determine their effects on supplier selection. Vignette‐based experiments in a transportation context test a priori hypotheses derived from Signaling Theory and post hoc qualitative insights reveal deeper understanding. Results show buyers have significant preferences to select, trust, and collaborate with suppliers who have desirable levels of employee welfare, philanthropy, and pricing. However, these findings are tempered by differential effect sizes and suggest that the practical significance of hypothesized relationships vary. These findings help refine our understanding of social sustainability conceptualizations and evolving supplier selection criteria, as well as offer timely insights for suppliers, buyers, and policymakers amidst surging demand for social sustainability.
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Achieving the dual goal of improved environmental and financial performance has become a universal business concern. Our study distinguishes between firms’ environmental behaviors and their environmental performance, a distinction that has been largely disregarded in previous empirical studies that analyze the association between environmental performance and financial performance. As an improvement in environmental performance itself does not necessarily guarantee positive financial returns, our study pays particular attention to the value-added nature of preemptive environmental activities, investigating the effects of plant-level pollution prevention activities (PPAs) on environmental performance and financial performance in terms of cost competitiveness and market valuation. Drawing on detailed environmental information about 18,743 chemical plants in the U.S. and analyzing a multi-level panel dataset constructed bottom-up from plant-level data to their parent firms’ performance data, we find that more intensive PPAs are associated with both superior environmental performance and improved cost competitiveness but do not necessarily lead to higher market valuation. Our study illuminates the specific environmental activities and conditions linked to environmental and financial performance, thereby offering managers practical guidance in pursuing both sustainable and profitable businesses under increasingly stringent environmental standards.
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Firms move to emerging markets to sell their products, reach new markets, and to strategically offshore or outsource their production and supply chains. However, they may also take advantage of loose environmental regulations and weak protection of existing laws in emerging market countries. Anecdotal evidence and media reports claim that increased firm activity in emerging economies such as China, India, Brazil, among others, has resulted in more significant environmental pollution. However, statistical evidence is lacking in this area. This research consequently investigates the impact of two forms of emerging market presence: the extent of offshoring penetration and extent of sales penetration on emissions performance. We conduct an empirical study using a panel dataset consisting of 300 global firms across various industries, along with their emission levels and emerging market penetration levels. Analysis of over six years of data from 2007 to 2012 shows that even after factoring in the endogeneity related to entry into emerging markets, firms that have a greater degree of emerging market penetration do indeed have higher emissions. We also find that a firm's beneficial actions related to environmental corporate social performance attenuate the relationship between emerging market penetration and emissions, whereas a firm's harmful actions related to environmental corporate social performance amplifies this relationship. Implications of this study for a firm's future strategic location and offshoring decisions are discussed and presented.
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The study examines the influence of investment in hazardous solid waste reduction on companies' financial performance. The challenge is that investment in hazardous solid waste reduction is traditionally considered an unnecessary cost to companies, with investors critical of such an undertaking because they perceive it to have insignificant or no returns. The study sampled 64 mining and manufacturing companies listed on the Social Responsibility Investment Index of the Johannesburg Stock Exchange from 2008 to 2017. Using Panel Data analysis, the results indicate that any investment in hazardous solid waste of the sampled companies is too insignificant to explain the changes in return on assets. The results, however, show that the current ratio is sufficiently significant to influence the return on assets. The results indicate that hazardous solid waste disposal through targeted investment decreases the risk of future liabilities, for instance, environmental litigation, strikes and fines for environmental damage, and could significantly affect the return on assets. The results suggest that hazardous solid waste reduction requires a substantial long-term financial commitment for process change. An example of one such process change is the complete automation for improved efficiency. A short-term approach is ultimately detrimental to tackling long-term hazardous solid waste reduction issues.
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Purpose The purpose of this paper is to evaluate the research conducted among the interim, dyadic interactions that bridge the stand-alone measures of economic, environmental and social performance and the level of sustainability, as suggested in the Carter and Rogers (2008) framework. Design/methodology/approach This paper conducts a systematic literature review based on the Tranfield et al. (2003) method of the articles published in 13 major journals in the area of supply chain management between the years 2010 and 2016. Results were analyzed using an expert panel. Findings The area of research between environmental and social performance is sparse and relegated to empirical investigation. As an important area of interaction, this area needs more research to answer the how and why questions. The economic activity seems to be the persistent theme among the interactions. Research limitations/implications The literature on the “environmental performance and social performance (ES)” interactions is lacking in both theoretical and analytical content. Studies explaining the motivations, optimal levels and context that drive these interactions are needed. The extant research portrays economic performance as if it cannot be sacrificed for social welfare. This approach is not in line with the progressive view of sustainable supply chain management (SSCM) but instead the binary view with an economic emphasis. Practical implications To improve sustainability, organizations need the triple bottom line (TBL) framework that defines sustainability in isolation. However, they also need to understand how and why these interactions take place that drive sustainability in organizations. Originality/value By examining the literature specifically dedicated to the essential, interim, dyadic interactions, this study contributes to bridging the gap between stand-alone performance and the TBL that creates true sustainability. It also shows how the literature views the existence of sustainability is progressive, but many describe sustainability as binary. It is possible that economic sustainability is binary, and progressive characterizations of SSCM could be the reason behind the results favoring economic performance over environmental and social.
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A firm's environmental technology portfolio comprises of a heterogeneous class of technologies, each with distinct economic and environmental implications. Having a portfolio with a proper mix of different technologies is critical in achieving economic and environmental goals. Using data on major United States’ corporates, I identify five types of environmental technologies: pollution control, eco-efficiency, green design, low-carbon energy, and management systems. I find that the composition of the environmental technology portfolio affects a firm's performance. Most notably, raising the share of low-carbon energy and pollution control technologies in the portfolio can negatively affect economic performance. But both low-carbon energy and pollution control are effective in improving carbon productivity. The other technologies do not display significant impacts on firm performance. The results highlight that firms should take the differential effects of environmental technologies into consideration when designing an adequate technology portfolio to attain desired economic and environmental objectives. Copyright © 2018 John Wiley & Sons, Ltd and ERP Environment
Article
Purpose In operations and supply chain management, time is largely one-dimensional – less is better – with much effort devoted to compressing, efficiently using, and competitively exploiting clock-time. However, by drawing on other literatures, the purpose of this paper is to understand implications for the field of operations management if we also emphasize how humans and organizations experience time, termed process-time, which is chronicled by events and stages of change. Design/methodology/approach After a brief review, the limitations of the recurrent time-oriented themes in operations management and the resulting short-termism are summarized. Next, sustainability is offered as an important starting point to explore the concept of temporality, including both clock- and process-time, as well as the implications of temporal orientation and temporal conflict in supply chains. Findings A framework that includes both management and stakeholder behavior is offered to illustrate how multiple temporal perspectives might be leveraged as a basis for an expanded and enriched understanding of more sustainable competitiveness in operations. Social implications Research by others emphasizes the importance of stakeholders to competitiveness. By recognizing that different stakeholder groups have varying temporal orientations and temporality, managers can establish objectives and systems that better reflect time-based diversity and diffuse temporal conflict. Originality/value This paper summarizes how time has been incorporated in operations management, as well as the challenges of short-termism. Sustainability forms the basis for exploring multiple perspectives of time and three key constructs: temporal orientation, temporality, and temporal conflict. A framework is proposed to better incorporate temporal perspectives as a basis for competitiveness in operations and supply chain management.
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Decades of research have demonstrated that fire management is one of the key land management issues for northern Australia. Fire management, through caring for country programs and carbon markets, provide livelihood opportunities and future options for Aboriginal people living in Australia’s tropical savannas. Such opportunities have potential socio-cultural, health and economic benefits for Indigenous communities as well as collateral benefits including biodiversity conservation and greenhouse gas emissions reduction. This research critically analyses the current theories and research underpinning the nexus between fire management, digital technologies, capacity building, training and learning for Indigenous and non-Indigenous people in northern Australia. The research focuses on a stakeholder analysis with fire managers and other people involved in fire management in northern Australia. The study also investigates two significant fire abatement projects as case studies involving Payment for Environmental Services schemes: West Arnhem Land Fire Abatement (WALFA) and Fish River Station. This investigation demonstrates how digital technologies have transformed recent perceptions and practices in fire management in Australia’s fire-prone savannas. Digital technologies have also been instrumental in reinstating more traditional burning practices that were disrupted with European settlement. However, the research findings identify how existing digital tools and rigid regulatory frameworks for the carbon markets can unintentionally establish power relations and marginalise Aboriginal people from participating more integrally in fire management and abatement opportunities. As successfully demonstrated in WALFA, the researcher recommends approaches that move towards convergence of seemingly incommensurate knowledge systems that connect and work together in fire operations. Such approaches involve prioritising pathways that build capacity, particularly for Indigenous people. From a convergent place-based space, targeted adaptive training programs are recommended that develop transferable capabilities such as computer literacies, GIS and business skills. These will empower Indigenous stakeholders, particularly rangers, to participate more integrally in fire management and abatement opportunities in northern Australia.
Chapter
Although firms engage in a variety of practices to manage their internal environmental performance as well as those of their supply chains, and they often promote those efforts to concerned stakeholders, it is not well understood how those voluntary corporate environmental initiatives (CEIs) affect the financial bottom line, and the market value of the firm. In this chapter, we discuss the various types of environmental initiatives that are reported in the business press, and how they can potentially impact firm costs and revenues. We provide empirical evidence of the relationships between CEIs and the market value of the firm.
Article
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Although a number of studies have been conducted on the relationship between environmental management and firm performance, most of them are conducted in the Western context. Due to the unique social and economic environments in China, the performance implications of environmental management might be quite different in the Chinese context. We examine the impact of corporate environmental initiatives (CEIs) on the market value of firms in China. We find that, in contrast to the findings in the Western context, Chinese investors react negatively to CEI announcements. The negative reaction is more significant when the announcements are related to processes rather than products, and for state-owned enterprises rather than privately-owned corporations. However, there is no difference whether the CEI is self-declared or third-party endorsed. Overall, our research indicates that Chinese investors consider CEIs to be in conflict with shareholder interest. In particular, CEIs in state-owned enterprises might be considered by investors as signals that firms need to sacrifice profits to shoulder more social responsibility.
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We examine over 100 top performing Canadian firms in visibly polluting industries as we seek to answer four research questions: What specific environmental issues are firms addressing? How do these issues differ between industries? Are both symbolic and substantive actions financially beneficial? Does green-washing, measured as the difference between symbolic and substantive action, and/or green-highlighting, measured as the combined effect of symbolic and substantive actions, pay? We find that substantive actions of environmental issues (green walk) neither harm nor benefit firms financially, but symbolic actions (green talk) are negatively related to financial performance. We also find that green-washing (discrepancy between green talk and green walk) has a negative effect on financial performance and green-highlighting (concentrated efforts of the talk and walk) has no effect on financial performance. In this article, we provide explanations of our findings and put forth future research directions.
Article
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This introduction presents a framework managers can use to deal with regulatory uncertainty and also introduces and summarizes how the papers in this special issue address what managers can expect, do, and gain from regulatory uncertainty.
Article
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Signaling theory is useful for describing behavior when two parties (individuals or organizations) have access to different information. Typically, one party, the sender, must choose whether and how to communicate (or signal) that information, and the other party, the receiver, must choose how to interpret the signal. Accordingly, signaling theory holds a prominent position in a variety of management literatures, including strategic management, entrepreneurship, and human resource management. While the use of signaling theory has gained momentum in recent years, its central tenets have become blurred as it has been applied to organizational concerns. The authors, therefore, provide a concise synthesis of the theory and its key concepts, review its use in the management literature, and put forward directions for future research that will encourage scholars to use signaling theory in new ways and to develop more complex formulations and nuanced variations of the theory.
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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.
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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.
Article
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At present, the resource-based view of the firm is perhaps the most influential framework for understanding strategic management. In this editor's introduction, we briefly describe the contribu-tions to knowledge provided by the commentaries and articles contained in this issue. In addition, we outline some additional areas of research wherein the resource-based view can be gainfully deployed.
Article
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Using hand-collected carbon emissions data for 2006 to 2008 that were voluntarily disclosed to the Carbon Disclosure Project by S&P 500 firms, we examine the effects on firm value of carbon emissions and of the act of voluntarily disclosing carbon emissions. Correcting for self-selection bias from managers' decisions to disclose carbon emissions, we find that, on average, for every additional thousand metric tons of carbon emissions, firm value decreases by $212,000, where the median emissions for the disclosing firms in our sample are 1.07 million metric tons. We also examine the firm-value effects of managers' decisions to disclose carbon emissions. We find that the median value of firms that disclose their carbon emissions is about $2.3 billion higher than that of comparable non-disclosing firms. Our results indicate that the markets penalize all firms for their carbon emissions, but a further penalty is imposed on firms that do not disclose emissions information. The results are consistent with the argument that capital markets impound both carbon emissions and the act of voluntary disclosure of this information in firm valuations. JEL Classifications: G14, Q51, M14. Data Availability: Data are available from the sources identified in the study.
Article
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Companies operating in multiple countries face different and often changing regimes of environmental regulation. This regulatory turbulence raises the question of what environmental strategies multinational enterprises with a portfolio of divergent regulatory regimes should develop in relation to their international business expansion strategies. We argue that multinationals seeking to develop an effective environmental strategy should integrate relative regulatory stringency and international market interdependence. We discuss and illustrate four environmental strategies that match different regulatory/market configurations for multinationals from both developed and emerging markets, as well as the factors that drive strategic changes. We introduce a ‘regulatory turbulence tool’ that describes relevant regulatory/market configurations and prescribes contingently effective, dynamic environmental strategies.
Article
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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?”
Article
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In this paper, we explore the locus of profitable pollution reduction. We propose that managers underestimate the full value of some means of pollution reduction and so under exploit these means. Based on evidence from previous studies, we argue that waste prevention often provides unexpected innovation offsets, and that onsite waste treatment often provides unexpected cost. We use statistical methods to test the direction and significance of the relationship between the various means of pollution reduction and profitability. We find strong evidence that waste prevention leads to financial gain, but we find no evidence that firms profit from reducing pollution by other means. Indeed, we find evidence that the bene fits of waste prevention alone are responsible for the observed association between lower emissions and profitability.
Article
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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.
Article
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Previous studies that attempt to relate environmental to financial performance have often led to conflicting results due to small samples and subjective environmental performance criteria. We report on a study that relates the market value of firms in the S&P 500 to objective measures of their environmental performance. After controlling for variables traditionally thought to explain firm-level financial performance, we find that bad environmental performance is negatively correlated with the intangible asset value of firms. The average "intangible liability" for firms in our sample is $380 million - approximately 9% of the replacement value of tangible assets. We conclude that legally emitted toxic chemicals have a significant effect on the intangible asset value of publicly traded companies. A 10% reduction in emissions of toxic chemicals results in a $34 million increase in market value. The magnitude of these effects varies across industries, with larger losses accruing to the traditionally polluting industries. © 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog
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Public confusion about the urgency of reductions in greenhouse gas emissions results from a basic misconception.
Article
Understanding sources of sustained competitive advantage has become a major area of research in strategic management. Building on the assumptions that strategic resources are heterogeneously distributed across firms and that these differences are stable over time, this article examines the link between firm resources and sustained competitive advantage. Four empirical indicators of the potential of firm resources to generate sustained competitive advantage-value, rareness, imitability, and substitutability are discussed. The model is applied by analyzing the potential of several firm resources for generating sustained competitive advantages. The article concludes by examining implications of this firm resource model of sustained competitive advantage for other business disciplines.
Article
Here I examine each of the major issues raised by Priem and Butler (this issue) about my 1991 article and subsequent resource-based research. While it turns out that Priem and Butler's direct criticisms of the 1991 article are unfounded, they do remind resource-based researchers of some important requirements of this kind of research. I also discuss some important issues not raised by Priem and Butler - the resolutions of which will be necessary if a more complete resource-based theory of strategic advantage is to be developed.
Article
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.
Article
At present, the resource-based view of the firm is perhaps the most influential framework for understanding strategic management. In this editor’s introduction, we briefly describe the contributions to knowledge provided by the commentaries and articles contained in this issue. In addition, we outline some additional areas of research wherein the resource-based view can be gainfully deployed.
Article
Cap and trade programs impose limits on industry emissions but offer individual firms the flexibility to choose among different operational levers toward compliance, including inputs, process changes, and the use of allowances to account for emissions. In this paper, we examine the relationships among (1) levers for compliance (at-source pollution prevention, end-of-pipe pollution control, and the use of allowances); (2) environmental performance; and (3) firm market performance for the context of stringent cap and trade regulation with allowance grandfathering (i.e., the allocation of allowances for free). To investigate these relationships, we use data on publicly traded utility firms operating coal-fired generating units regulated by the U.S. Acid Rain Program from three principal sources: the U.S. Energy Information Administration, the U.S. Environmental Protection Agency, and the Compustat database. Our results indicate a significant relationship between better environmental performance and lower firm market performance over at least a three-year period. From a regulatory perspective, our results show a negative association between allowance grandfathering and firm environmental performance. Overall, by explicitly considering the context of stringent regulation, we find a counter-example to the view that better environmental performance generally associates with better economic performance.
Article
This article examines the effect of product development restructuring (PDR) on shareholder value. The results are based on a sample of 165 announcements made during 2002–2011. PDR announcements are associated with an economically and statistically significant positive stock market reaction. Over a two-day period (the day of the announcement and the day preceding the announcement), the mean (median) market reaction is 1.63% (0.87%). The market reaction is generally positive regardless of the PDR purpose or action. Although the market reaction is more positive for higher R&D intensity firms, it is not directly affected by the firm's prior financial performance or whether the firm's primary PDR objective is to increase revenues or cut costs. However, the interaction between the firm's prior financial performance and its primary PDR objective is significant. For firms that are financial outperformers, the market reaction is more positive if the firm's primary PDR objective is to increase revenues. For financial underperformers, the market reaction is more positive if the firm's primary PDR objective is to cut costs.
Article
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.
Article
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.
Article
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.
Article
Much of the early literature in the area of quality management literature is anecdotal, prescriptive, and methodologically suspect. As such, theory construction and rigorous empirical testing is a relatively recent development with the emphasis very much on quality practices. However, the various dimensions of quality performance and the relationship between them have received less attention from the research community. More specifically, the role of design quality has not been fully addressed in empirical studies. To address this gap we developed a path model incorporating quality practices, design quality, conformance quality, external quality-in-use, product cost, time-to-market, customer satisfaction and business performance. The model was tested with data collected from 200 suppliers in the electronics sector in the Republic of Ireland. Data analysis of the data indicated considerable support for the conceptual model.
Article
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.
Article
We study the stock market reaction to announcements of global green vehicle innovation over a 14-year time span (1996-2009) using the event study methodology. We document that the stock market generally reacts positively to automakers' announcements of environmental innovations, consistent with prior research on the wealth effects of innovation announcements. Our results indicate that crucial green product development decisions such as innovation type and market segment choices exert direct influence on a firm's market value. These results hold after controlling for firm size, leverage, profitability, R&D intensity, and oil price changes.
Article
Interest in climate-change risk from institutional investors and various other stakeholders has grown eighteen-fold in the past decade (PwC 2012). Indeed, some informed observers expect that concern about the relationship between carbon emissions and global climate change will drive a redistribution of value from firms that do not control their carbon emissions successfully to firms that do (GS Sustain 2009). Using hand-collected carbon emissions data for 2006 to 2008 that S&P 500 firms disclosed voluntarily to the Carbon Disclosure Project, we examine the relationship between carbon emissions and firm value. Correcting for self-selection bias from managers’ decisions to disclose carbon emissions, we find that, on average, for every additional thousand metric tons of carbon emissions, firm value decreases by $212,000. We also examine the firm-value effects of managers’ decisions to disclose carbon emissions. We find that the median firm value of firms that disclose their carbon emissions is about $2.3 billion higher than the median value of nondisclosing firms. Our results indicate that all firms are penalized for their carbon emissions, but firms that do not disclose their emissions face a further penalty for nondisclosure. Results of sensitivity analyses and robustness tests are similar to the main results.
Article
This article surveys the theoretical and empirical literature on mechanisms that confer advantages and disadvantages on first-mover firms. Major conceptual issues are addressed, and recommendations are given for future research. Managerial implications are also discussed.
Article
Here I examine each of the major issues raised by Priem and Butler (this issue) about my 1991 article and subsequent resource-based research. While it turns out that Priem and Butler's direct criticisms of the 1991 article are unfounded, they do remind resource-based researchers of some important requirements of this kind of research. I also discuss some important issues not raised by Priem and Butler-the resolutions of which will be necessary if a more complete resource-based theory of strategic advantage is to be developed.
Article
IT failures abound but little is known about the financial impact that these failures have on a firm’s market value. Using the resource-based view of the firm and event study methodology, this study analyzes how firms are penalized by the market when they experience unforeseen operating or implementation-related IT failures. Our sample consists of 213 newspaper reports of IT failures by publicly traded firms, which occurred during a 10-year period. The findings show that IT failures result in a 2% average cumulative abnormal drop in stock prices over a 2-day event window. The results also reveal that the market responds more negatively to implementation failures affecting new systems than to operating failures involving current systems. Further, the study demonstrates that more severe IT failures result in a greater decline in firm value and that firms with a history of IT failures suffer a greater negative impact. The implications of these findings for research and practice are discussed.
Article
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.
Article
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.
Article
This paper examines the motivations for participation in the voluntary 33/50 Program and the program's impact on the toxic releases and economic performance of firms in the U.S. chemical industry. It demonstrates that the benefits due to public recognition and the potentially avoided costs of liabilities and compliance under mandatory environmental regulations provide strong incentives for participation. After controlling for sample selection bias and the impact of other firm-specific characteristics, this paper shows that program participation led to a statistically significant decline in toxic releases over the period 1991–93. The program also had a statistically significant negative impact on the current return on investment of firms, but its impact on the expected long run profitability of firms was positive and statistically significant.
Article
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.
Article
Understanding sources of sustained competitive advantage has become a major area of research in strategic management. Building on the assumptions that strategic resources are heterogeneously distributed across firms and that these differences are stable overtime this article examines the link between firm resources and sustained competitive advantage. Four empirical indicators of the potential of firm resources to generate sustained competitive advantage—value, rareness, imitability, and substitutability—are discussed. The model is applied by analyzing the potential of several firm resources for generating sustained competitive advantages. The article concludes by examining implications of this firm resource model of sustained competitive advantage for other business disciplines.ABSTRACT FROM AUTHOR
Article
This paper examines properties of daily stock returns and how the particular characteristics of these data can affect event study methodologies. We find no evidence that either nonnormality in the time-series of daily excess returns or bias in OLS estimates of Market Model parameters affect the specification or power of tests for abnormal performance. However, under plausible conditions, both autocorrelation in excess returns and changes in the variance of daily returns conditional on an event can affect the tests; simple procedures to deal with these issues are sometimes quite useful. We also show that taking into account dependence in the cross-section of the daily excess returns can be harmful, resulting in tests with relatively low power and which are no better specified than those which assume independence.
Article
Whether you're in a traditional smokestack industry or a "clean" business like investment banking, your company will increasingly feel the effects of climate change. Even people skeptical about global warming's dangers are recognizing that, simply because so many others are concerned, the phenomenon has wide-ranging implications. Investors already are discounting share prices of companies poorly positioned to compete in a warming world. Many businesses face higher raw material and energy costs as more and more governments enact policies placing a cost on emissions. Consumers are taking into account a company's environmental record when making purchasing decisions. There's also a burgeoning market in greenhouse gas emission allowances (the carbon market), with annual trading in these assets valued at tens of billions of dollars. Companies that manage and mitigate their exposure to the risks associated with climate change while seeking new opportunities for profit will generate a competitive advantage over rivals in a carbon-constrained future. This article offers a systematic approach to mapping and responding to climate change risks. According to Jonathan Lash and Fred Wellington of the World Resources Institute, an environmental think tank, the risks can be divided into six categories: regulatory (policies such as new emissions standards), products and technology (the development and marketing of climate-friendly products and services), litigation (lawsuits alleging environmental harm), reputational (how a company's environmental policies affect its brand), supply chain (potentially higher raw material and energy costs), and physical (such as an increase in the incidence of hurricanes). The authors propose a four-step process for responding to climate change risk: Quantify your company's carbon footprint; identify the risks and opportunities you face; adapt your business in response; and do it better than your competitors.
Article
Researchers debate whether environmental investments reduce firm value or can actually improve financial performance. We provide some first evidence on shareholder wealth effects of voluntary corporate environmental initiatives. Companies announcing membership in Climate Leaders and Ceres - two voluntary environmental programs related to climate change - experience significantly negative abnormal stock returns. The price decline is smaller in carbon-intensive industries, where regulatory actions are more likely, and for high book-to-market firms, suggesting that "green" expenditures crowd out growth-related investments. We also document insignificant announcement returns for portfolios of industry rivals. Overall, the environmental investments appear to conflict with shareholder value-maximization. This has far reaching implications since the U.S. government relies on voluntary initiatives to reduce the emissions of greenhouse gases.
Article
This paper is an ‘event-time’ study of the common stock prices of a sample of 658 corporations around the dates on which they publicly announced their future capital expenditure plans. For industrial firms, announcements of increases (decreases) in planned capital expenditures are associated with significant positive (negative) excess stock returns. For public utility firm, neither increases nor decreases in planned capital expenditures are associated with significant excess stock returns. We interpret the evidence as being consistent with the hypothesis that managers seek to maximize the market value of the firm in making their corporate capital expenditure decisions.
Article
We investigate the underlying causes and the announcement effects of plant closings. The closing in our sample do not appear related to takeover activity. Instead, they appear motivated by declining firm profitability. Firms announcing closings have lower earnings than market or industry medians; earnings typically improve slightly after the announcement. We find a negative stock-market reaction to plant-closing announcements.
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