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The relationships among environmental management, firm value and other firm attributes: Evidence from Chinese manufacturing industry

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Abstract

Many studies have investigated the relationships among environmental management, financial performance and other firm attributes. Their results are inconsistent and contested. Most of the empirical studies to date are in the context of developed countries rather than developing countries. This study fills this gap by providing an empirical examination of the relationships among environmental management, firm value and other firm attributes in the Chinese context. In addition, this study is the first study of Chinese firms to use panel data analysis methods in the examination of the impact of environmental management on firm value. The results of panel data analysis show that environmental management has no significant impact on firm value. Pearson tests show that prior financial performance does not affect the level of environmental management. Rather, firm size is shown to be positively correlated with the level of environmental management.
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Wei Lu, Wen-Jun Wang, Adam J. Sulkowski, Jia Wu
DOI: 10.1504/IJESD.2011.037692
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Int. J. of Environment and Sustainable Development > 2011 Vol.10, No.1 > pp.78 - 95
Title: The relationships among environmental management, firm value and other firm
attributes: evidence from Chinese manufacturing industry
Author: Wei Lu, Wen-Jun Wang, Adam J. Sulkowski, Jia Wu
Addresses:
School of Management, University of Science and Technology of China, Room 915, 96
Jinzhai Road, Hefei, Anhui 230026, China.
School of Management, University of Science and Technology of China, Room 915, 96
Jinzhai Road, Hefei, Anhui 230026, China.
University of Massachusetts Dartmouth, Charlton College of Business, 285 Old Westport
Road, North Dartmouth, MA 02747, USA.
University of Massachusetts Dartmouth, Charlton College of Business, 285 Old Westport
Road, North Dartmouth, MA 02747, USA
Journal: Int. J. of Environment and Sustainable Development, 2011 Vol.10, No.1, pp.78 -
95
Abstract: Many studies have investigated the relationships among environmental
management, financial performance and other firm attributes. Their results are
inconsistent and contested. Most of the empirical studies to date are in the context of
developed countries rather than developing countries. This study fills this gap by providing
an empirical examination of the relationships among environmental management, firm
value and other firm attributes in the Chinese context. In addition, this study is the first
study of Chinese firms to use panel data analysis methods in the examination of the
impact of environmental management on firm value. The results of panel data analysis
show that environmental management has no significant impact on firm value. Pearson
tests show that prior financial performance does not affect the level of environmental
management. Rather, firm size is shown to be positively correlated with the level of
environmental management.
Keywords: environmental management; firm value; China; manufacturing industry;
developing countries; panel data analysis; financial performance; firm size.
DOI: http://dx.doi.org/10.1504/IJESD.2011.037692
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1
INTRODUCTION
A growing number of firms around the world have adopted or increased
environmental management practices. The implementation of environment management
practices may be driven by a desire to comply with environmental rules and regulations,
increase financial return and firm value, and improve a firm’s reputation. Due to the
availability of data, most prior studies focused on the relationship between environmental
management and financial performance. However, mixed results have been found as to
whether environmental management affects a firm’s financial performance. Similarly,
there is no consensus regarding how various firm characteristics may influence a firm’s
adoption of environmental management. The different findings could be partially
attributed to the differences in environmental management measurement. To compare
firms’ environmental management practices, we propose an Environmental Management
Index (EMI) that uses qualitative information extracted from publicly-available annual
reports.
We choose Chinese manufacturing companies in this study because of the
importance of China in the world economy as a manufacturing center and its ongoing
rapid expansion. However, this economic growth and expansion of manufacturing has
come at the cost of exacerbating environmental conditions. China has become the world’s
largest carbon emitter.1 In addition, China is facing severe problems in soil contamination,
water pollution and air pollution. Despite of these exacerbating problems, environmental
management is still in a nascent stage in China. In response, the Chinese central
government has begun to attach great importance to environment protection. It has
actively participated in bilateral and multilateral talks with other countries on
1 See China’s Carbon Truth, Wall Street Journal, Sept 16th 2009.
2
environmental issues, passed a series of new environmental protection laws and allocated
research into alternative energy sources.2
Publicly available financial reports were the data source for this study. Disclosures
related to environmental management practices are made on a voluntary basis by listed
Chinese firms. Based on previous research, we may presume that these voluntary
disclosures are generally made to, ultimately, either increase firm value or financial
performance. The precise mechanisms by which those ends are achieved may differ. For
example, maybe managers make disclosures to enhance their firms’ reputations, or to
build trust with shareholders, or to recruit talent or control costs, or to proactively address
the concerns of regulators. However, all of these mechanisms ultimately serve to enhance
either firm value or financial performance. The results of this study reveal an
insignificant relationship between environmental management and firm value, which may
indicate at least at this stage that that Chinese capital market does not value
environmental management disclosure. It may imply that the current voluntary
disclosures related to environmental management are not made to communicate with
investors, but rather to, for example, enhancing reputation.
WHAT IS ENVIRONMENTAL MANAGEMENT?
The definition of environmental management in scholarly literature has evolved over
time. We agree with Kolk and Mauser (2002) that environmental management should be
distinguished from environmental performance. Namely, a firm’s actual use of resources
and impacts on its surroundings constitute environmental performance whereas
environmental management refers to the practices and structures that a firm employs to
2 See EPA’s China Environmental Law Initiative http://www.epa.gov/ogc/china/initiative_home.htm
3
minimize negative environmental impacts. Elsewhere, environmental management has
been defined as “the part of the management system that includes the organizational
structure, the responsibilities, practices, procedures, processes and resources meant to
achieve and maintain a specific environmental behavior that can reduce the impact
caused by enterprise operations on the natural milieu” (Claver et al., 2007). Evaluating
environmental management separately from environmental performance makes sense not
only because industries differ in terms of their environmental impacts and businesses
differ in terms of their baselines of performance; environmental performance may also be
affected by factors that are distinct from the quality of a firm’s environmental
management (Claver et al., 2007). Xie and Hayase (2007) find that better environmental
management does not always lead to better environmental performance.
THE RELATIONSHIP BETWEEN ENVIRONMENTAL MANAGEMENT AND
OTHER FIRM CHARACTERISTICS
A critical question, especially for managers, is what effect, if any, does
environmental management have on financial performance. This relationship has
remained relatively unexplored, even as the link between corporate environmental
performance and financial performance has been studied since the 1970s (e.g. Bragdon
and Marlin, 1972; Spicer, 1978; Konar and Cohen, 2001; Wagner et al., 2002; Elsayed
and Paton, 2005). Previous research (Stanwick and Stanwick, 2000) has shown that firms
classified as high financial performers disclose environmental policies and/or
descriptions of environmental commitment more often than firms classified as low
4
performers. Similarly, voluntary environmental management seemed to have improved
financial performance relative to competitors in a case study of farming in Spain (Claver
et al., 2007). In two studies of businesses in China, ISO14000 certification positively
affected firm stock price, though other factors may have been affecting firm value and
stock price. At any rate, the key question remains: in China (as elsewhere), and
controlling for other factors, does environmental management affect a firm’s financial
performance?
A critical challenge for policy-makers and policy-enforcers is to allocate resources
and choose incentives that best encourage firms to adopt best practices. Therefore,
besides examining whether better environmental management results in better financial
performance, the authors also tested the inverse relationship; namely, whether better
financial performance may cause firms to improve their environmental management.
Conceivably, more financial resources allow managers at wealthier companies to invest
more in environmental management.
There are other factors that may affect the seriousness with which a firm
approaches environmental management. Larger firms tend to be more publicly visible
and therefore may care more about their reputations. Larger firms may also have the
resources to more vigorously pursue an environmental management agenda. One would
therefore guess that larger firms are more likely to take environmental management
seriously. Quantitative research suggests that this is in fact the case (e.g. Henriques and
Sadorsky, 1996; Wagner et al., 2002;). Besides firm size, the age of a firm may also
affect the extent to which a firm engages in environmental management. Older firms
may have more experience managing shareholder relationships and may have brand
5
reputations that they are more invested in protecting. For this reason, older firms may
be engaged in environmental management to a greater extent. Finally, a firm’s
ownership may play a role in determining the extent of its efforts in environmental
management; owners may have strong opinions about how environmental management
should be implemented and, depending on the type of ownership structure, may have
more or less success in persuading managers to do as they advise (Darnell et al., 2008).
This may be especially true in China. The managers of Chinese state-owned firms tend
to have close ties with government leaders. In some cases, this may result in
government leaders being able to convince managers to make investments in
environmental management. In other cases, this may result in managers receiving
favored treatment, even as their firms take risks, fail to implement environmental
management, and break rules. At least one study suggests that Chinese state-owned
firms indeed have worse environmental performance records than private, collective or
foreign-owned firms (Wang and Jin, 2002).
GAUGING THE RIGOR OF ENVIRONMENTAL MANAGEMENT
Environmental management involves environmental strategies, policies,
communication and commitment and has been evaluated using different models (Kolk
and Mauser, 2002). Kolk and Mauser (2002) used elements identical to those of the
ISO14031 standard for evaluating environmental performance and management.
Similarly, the Eco-Management and Audit Scheme (EMAS) of the European Union helps
companies and other organizations to evaluate, report and improve their environmental
6
performance and management. Academics have also constructed environmental
performance measurement models (Xie and Hayase, 2007).
A NEW PROPOSAL FOR AN ENVIRONMENTAL MANAGEMENT INDEX
The authors propose a new Environmental Management Index (EMI) that may be
applied in other contexts or else serve as the basis for further discussion and refinement.
A new EMI is needed in the case of studying Chinese firms because publicly reporting by
firms in China on environmental issues is still in its infancy. There is a lack of publicly
available quantitative data on firms’ commitments to environmental management, such as
money spent on pollution abatement. Caution must also be exercised in choosing
indicators of good environmental management, since firms have been shown to make
statements of positive intent while later failing to implement responsible practices (Ulrich
et al., 2003). Our new index is based on the following: (1) mention of environmental
strategy, policy or targets in a firm’s vision statement, (2) implementation of an
environmental protection endeavors inside the organization, as evidenced by (a)
measurement and tracking of a firm’s environmental impacts, (b) the existence of a
department or organizational structure related to environmental management, (c)
environmental capacity-building for employees, such as regular workshops on
environmental protection, (d) the adoption of less polluting equipment and technology, (e)
the research and development of environment-friendly products and (f) the redesign of
production processes., (3) efforts to offset unavoidable negative environmental impacts,
such as participation in local, national or international environmental remediation or
7
offset programs, and (4) evidence of meeting independent standards set by a third party,
such as (a) being certified as meeting an environmental management standard or (b)
receiving local, national or international awards.
The four components and ten specific indicators of the proposed environmental
management index are summarized in the following table.
Insert Table 1: A New Proposed Environmental Management Index (EMI)
These ten indicators also demonstrate that a firm is actually implementing environmental
management initiatives. To establish an EMI score based on these qualitative factors, one
point is added to each firm’s score for each indicator statement that is found to be true.
The minimum possible score is therefore zero while the maximum possible score is ten. A
higher EMI score indicates a greater rigor of environmental management. As described
below, the annual reports of companies are used as the source of data for determining the
EMI score of companies.
TESTING THE RELATIONSHIP BETWEEN THE PROPOSED EMI AND
VARIOUS FIRM CHARACTERISTICS
We tested the relationships between environmental management and other firm
characteristics based on a sample of 337 firms from 2004 to 2007. To make sure we are
comparing “apples to apples” – that is, to assure that comparisons were made about
roughly similar firms manufacturing firms listed on the Shanghai Stock Exchange were
8
specifically chosen. Manufacturing firms were identified in accordance with the Industry
Classification Benchmarks issued by the China Security Regulatory Commission. Further,
firms that issue B-shares (which are Renminbi-denominated shares traded in US dollars)
or H-shares (which are registered on the Chinese mainland but listed and traded in Hong
Kong) and those listed as ST (firms getting special treatment on the stock market) were
excluded to ensure more similarity among the companies in the sample.
We chose a simplified Tobin’s q model to measure firm value, which requires the
fewest financial variables (Lang and Stulz, 1994; Chung and Pruitt, 1994). The
simplified Tobin’s q model is a preferred approach because not all firms report all the
data needed for other comparisons. The only data needed for the Tobin’s q model are:
MVE (the product of share price and the number of common stock shares outstanding),
PS (the liquidating value of outstanding preferred stock), debt (the value of a firm's short-
term liabilities net of its short-term assets plus the book value of its long term debt), and
TA (the book value of its total assets). Tobin’s q is calculated as follows:
q = (MVE + PS + DEBT)/TA
We further introduced a series of variables to control for other potential influences
on firm performance. These included controlling for growth (the ratio of equity market
value to book value), capital intensity (the ratio of fixed assets to total assets), R&D and
advertising expenditures, firm ages (from the date of the firm’s founding and, separately,
from the date of the firm’s Initial Public Offering). All financial and accounting data was
found in the Wind Database, a leading financial data and financial software provider in
mainland China. Other information was located in annual reports available at the
Shanghai Stock Exchange website.
9
Environmental Management Index (EMI) Scores
Insert Table 2: Mean and Range of EMI Each Year
Results in Table 2 indicate that environmental management is generally weak among
Chinese firms. This can be attributed to a lack of awareness that environmental data
reporting is valued, leading to a lack of public disclosures related to environmental
management. However, the table shows that environmental management improved
between 2004 and 2007. It suggests that managers may have responded to stakeholders’
increasing demand for greater disclosures related to environmental management. Finally,
the large range of EMI scores suggests that there are significant differences between
Chinese firms in terms of levels of awareness and engagement in environmental
management. Table 2 also shows different EMIs among different sub-sectors. The Paper
& Printing sector maintains a relatively higher level of environmental management, while
the Metal & Metalloid and Oil & Chemical & Plastic sectors show the fastest
development in environmental management. This is not surprising, considering that
these three sub-sectors generate relatively heavier negative impacts on the environment
and therefore have greatest potential and the strongest pressure to improve. This is also
consistent with a well-established pattern in more developed economies: companies with
heavier negative impacts on the environment are the early adopters of the practice of
greater voluntary environmental reporting on their environmental initiatives and
performance. The data also clearly indicate that 2007 is the year in which disclosures
10
related to environmental management grew the most. Except for the EMI scores of the
Electronics sub-sector and the sub-sector labeled Machine & Equipment & Instruments,
both of which experienced a slight decrease, the EMI scores of all the sub-sectors have
increased by a large percentage. The data in Table 2 suggests that environmental
management has become increasingly popular. It indicates that Chinese firms gradually
disclose more information related to environmental management.
The authors, using correlation tests and panel data analysis, examine whether the
vigor of environmental management had an impact on firm financial performance. The
untabulated results showed no significant relationship between the environmental
management index scores and firm value. Similarly, firm financial performance did not
seem to be a good predictive indicator of whether a firm would be likely to engage more
rigorously in environmental management. Further, the authors found that neither firm
size nor the type of firm ownership affected a firm’s EMI score. However, the authors
did find that firm size did seem to be a useful predictor of whether a firm would
rigorously engage in environmental management.
DISCUSSION AND IMPLICATIONS FOR SCHOLARS, MANAGERS, AND
OTHER PRACTITIONERS
As described above, the EMI scores of Chinese manufacturing companies reflect
both well-established trends in more developed countries and what is readily apparent to
those involved with or observing Chinese business. First, early adopters are companies
with relatively worse impacts on the natural environment. Second, publicly reporting on
environmental management efforts and successes is becoming increasingly commonplace.
11
Third, public reporting of environmental management efforts and successes on the part of
individual firms is becoming increasingly thorough.
There are several explanations for these trends. Stakeholders including foreign or
domestic investors, policy-makers or policy-enforcers, or consumers may be requesting
more information about environmental issues. It may be that managers are anticipating
interest from these stakeholders in the near future and both engaging in more
environmental management and disclosing more about these efforts to preempt scrutiny
and mitigate the likelihood of criticism. As in the West, Chinese managers may believe
that their companies’ future financial performance may be positively affected by
engaging in and reporting on environmental management efforts. Finally, Chinese
managers may genuinely believe that damaged and deteriorating environmental
conditions behoove them to engage in better environmental management; some Chinese
managers vigorously insist that this is the truth
Regardless of the explanations, the new EMI based on qualitative data proposed by
the authors appears, both theoretically and practically, to accurately reflect the relative
vigor with which firms approach environmental management. The proposed EMI
therefore is a basis for further critique and refinement by scholars. For managers and
other practitioners, the proposed EMI may serve as a checklist as they engage in or
evaluate environmental management efforts and benchmark firms against each other.
The finding that prior financial performance does not seem, to any extent, predictive
of the relative vigor of environmental management efforts among 337 Chinese
manufacturing firms is also significant. There is a widely-held presumption that only
thriving firms can afford to be environmentally responsible. The data considered in this
12
study suggests that this is not always true. For managers and other practitioners, as well
as for policy-makers and policy-enforcers, this should eliminate relatively low financial
performance as an excuse for failing to engage in and report on environmental
management.
Vigorous environmental management seems to be the exclusive realm of neither
highly valued firms nor old firms focused on protecting hard-earned positive brand
images nor state-owned enterprises or privately-held firms. Such firm characteristics, in
this study, failed to be predictive of what firms engage in vigorous environmental
management. The authors invite scholars to test these relationships in other contexts. For
managers and other practitioners, including policy-makers and policy-enforcers, these
findings suggest that firm value, firm age or firm ownership characteristics are not
excuses for failing to engage in and report on environmental management.
The fact that firm size is predictive of the relative vigor of environmental
management likewise should be seen as significant for scholars, managers and other
practitioners. According to a survey conducted in 2001 by Ulrich et al., although larger
companies were heavier polluters, these companies had a less positive attitude towards
environmental management than the average. Several years later in 2007, larger firms
have attached more importance to environmental management relative to smaller
companies. The positive correlation between firm size and the vigor of environmental
management indicates increasing engagement by Chinese managers especially at larger
firms in environmental management. This suggests another line of inquiry: what
factors can explain managers at larger firms appear to be adopting environmental
management at a faster rate?
13
Finally, data related to Chinese manufacturing firms indicate that the adoption of
environmental management does not affect firm value. Since this conclusion is at odds
with other empirical work, firm financial performance may depend on the precise ways
that environmental management is implemented. At the very least, this finding should
provoke further research that tests the relationship between environmental management
efforts and firm value or other measures of financial performance. This finding also
highlights another direction for future research: what kind of environmental management
approach has an optimal affect on firm financial performance? Environmental
management’s apparent lack of impact on firm value should provoke questions from
scholars as well as managers and other practitioners. Why are managers adopting these
practices? If there is no negative impact, why are some managers not adopting these
practices? Are markets failing to reflect the potential value that environmental
management represents? What are the best practices of managers that create a “win-win”
outcome, where environmental management efforts result in both improved
environmental performance and improved financial performance?
Few empirical studies have used data from the developing world to examine the
relationships between environmental management, firm financial performance and
various other firm attributes. Increasing negative anthropogenic impacts on the world’s
natural environment, compounded by the increasing environmental impacts of China and
other developing countries, have added urgency to the understanding the relationship
between environmental management and other firm characteristics. The authors have
suggested and applied a novel environmental management index that may prove useful in
contexts where there is more qualitative than quantitative data on the relevant practices.
14
The authors also endeavored to provoke further scholarly thought and research in this
area by testing several relationships between environmental management and various
firm characteristics.
The authors found that firm size is a useful predictor of whether a firm will attach
importance to environmental management, with larger firms tending to take
environmental management more seriously. The authors found that neither financial
performance nor type of firm ownership nor the age of a firm are correlated with
indicators of environmental management. This suggests, among other things, that greater
profitability is not a prerequisite for engaging in environmental management.
The authors’ findings, therefore, point to several additional veins of research. These
include a discussion and refining of an index of indicators that reflect firms’
commitments to environmental research. Potentially there are other predeterminants or
predictive characteristics that should be tested; such knowledge could help policy-makers
and policy-enforcers identify what firms need to be encouraged to engage in
environmental management. Conversely, understanding the impacts of environmental
management on various aspects of firm performance could help convince managers that
investments in environmental management truly do pay for themselves and contribute to
better financial performance. Finally, scholars should build on this research in both
China and the rest of the world to assist managers in the precise ways in which
environmental management measures are implemented.
15
References:
1. Bragdon, J, Marlin, J. 1972. Is pollution profitable? Risk Management 19: 918.
2. Claver E., López M.D., Molina J.F., Tarí J.J. 2007. Environmental management
and firm performance: A case study. Journal of Environmental Management
84: 606619.
3. Darnell N., Henriques I., Sadorsky P. 2008. Do environmental management
systems improve business performance in an international setting? Journal of
International Management 14(4): 364-376.
4. Elsayed K., Paton D. 2005. The impact of environmental performance on firm
performance: static and dynamic panel data evidence. Structural Change and
Economic Dynamics 16: 395412.
5. Henriques I., Sadorsky P., 1996. The determinants of an environmentally
responsive firm: an empirical approach. Journal of Environmental Economics
and Management 30: 381-395.
6. Kolk A., Mauser A. 2002. The evolution of environmental management: from
stage models to performance evaluation. Business Strategy and the
Environment 11(1): 14-31.
7. Konar S., Cohen M. 2001. Does the market value environmental performance?
The Review of Economics and Statistics 83: 281289.
8. Spicer B. 1978. Investors, corporate social performance and information
disclosure: an empirical study. The Accounting Review 33: 94111.
9. Stanwick S. and Stanwick P. 2000. The Relationship between Environmental
Disclosure and Financial Performance: An Empirical Study of US Firms. Eco-
Management and Auditing 7: 155164.
10. Wagner M, Van Phu N., Azomahou T, Wehrmeyer W. 2002. The relationship
between the environmental and economic performance of firms: an empirical
analysis of the European paper industry. Corporate Social Responsibility and
Environmental Management 9: 133146.
11. Wang H., Jin Y. 2007. Industrial ownership and environmental performance:
evidence from China. Environmental and Resource Economics 36(3): 255-273.
12. Xie S. and Hayase K. 2007. Corporate Environmental Performance Evaluation: a
Measurement Model and a New Concept. Business Strategy and the
Environment 16: 148168.
16
Table 1: A New Proposed Environmental Management Index (EMI)
EMI Components
Indicators
Vision, strategy, policy
1. Specific and explicit mention of environmental
protection in the company’s vision and strategy
Environmental
protection
endeavors
inside the
organization
2. Disclosure of the pollution the company has
caused
3. Existence of a department charged with
environmental protection
4. Occurrence of environmental protection
training
5. Development of new technologies that are more
environmentally-friendly
6. Deployment of new equipment that is more
environmentally-friendly
7. Research and development on new products and
processes that are more
environmentally-
friendly
Environmental protection
endeavors
outside the
organization
8. Participation in local, national or
international
environmental
remediation or offset programs
Objective evaluation
9. Certified by ISO14000
10. Granted environmental protection awards
17
Table 2: Mean and Range of EMI Each Year
Manufacturing sub-
sectors
Sample
size
Mean of EMI
Range of EMI
2004
2005
2006
2007
2004
2005
2006
2007
Food & Beverage
25
0.20
0.28
0.52
2.56
2
2
4
5
Textile & Clothing
& Leather
25
0.28
0.44
0.52
2.20
2
2
3
7
Wood & Furniture
2
0.5
1.0
1.0
2.0
1
2
2
4
Paper & Printing
13
1.46
1.69
1.77
3.15
6
6
6
6
Oil & Chemical &
Plastic
59
0.75
1.75
2.00
3.02
3
5
5
7
Electronics
23
0.57
0.83
1.04
0.96
2
4
5
4
Metal & Metalloid
54
0.74
1.70
1.80
2.80
4
7
7
6
Machine &
Equipment
&
Instruments
84
0.75
1.31
1.42
1.39
3
4
5
7
Medicine &
Biologicals
42
0.71
0.86
0.98
1.79
3
6
7
5
Others
10
0.6
0.8
1.1
1.1
3
2
4
3
Total
337
0.68
1.22
1.37
2.13
6
7
7
7
... However, there is a preliminary empirical study on the effect of green innovation among Chinese energy-intensive companies [11]. Many research studies recently indicated that the variable of business sustainability performance was used as a dependent research variable in different countries [12][13][14]. These findings suggest many researchers have been interested in exploring the influencing factors on business sustainability. ...
... For example, a representative study was implemented by Wei et al. The work examined the relationship between environmental management and firm size; an effect on financial performance was not yet observable [14]. Singh et al. found that green innovation would positively correlate with the environmental performance [15]. ...
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Chinese manufacturing has recently undertaken the responsibility of energy conservation and emission reduction to address climate change. This research analyzes green innovation on business sustainability in the energy-intensive industry in China from the manager perspective, researched data from 229 Chinese managers via structural equation modeling (SEM). The results demonstrated that green innovation had three dimensions: green product innovation, recycling, and green publicity. Business sustainability also had three dimensions: financial performance, environmental performance, and social performance. It also shows that green innovation had a significant effect on business sustainability in the energy-intensive industry. More specifically, we found that recycling has more impact on social performance when compared with green publicity. However, green publicity has a large effect on environmental performance; moreover, green product innovation has more impact on financial performance than green publicity. We also found that environmental performance has a positive effect on financial and social performance results. The alternative models were used to examine the second-order factors of green innovation and business sustainability to test the study’s robustness and supported our findings. Thus, this study contributes to the field by helping managers to make decisions when dealing with sustainable environmental management. It provides new empirical evidence to support the development of a low-carbon circular economy and realization of a carbon-neutral goal by 2060 in China.
... Furthermore, this kind of project is time consuming, and requires significantly advanced knowledge and technology to develop these innovations to reduce energy consumption and emissions. Therefore, having a longterm vision helps the leader to plan different objectives to contribute to a successful, low carbon transformation, ultimately [52,53]. ...
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This study explored a theoretical model of factors affecting employee turnover intentions in the energy-intensive industry from the perspective of environmental regulation through emission reduction policy. Moreover, we examined whether green transformational leadership has a negative effect on the perception of turnover risk of energy-intensive corporate employees and their turnover intentions; we collected data on 531 employees in the energy-intensive industries in China. Data analysis was conducted using exploratory factor analysis, reliability and validity analysis, stepwise regression model analysis, and a structural equation model to test the research hypothesis. The results revealed that environmental regulation through emission reduction policy has a significant impact on employee perception of turnover risk and turnover intention in energy-intensive industries in China. The perception of turnover risk has a greater effect on the turnover intention among employees than the emission reduction policy. Moreover, we found that the perceived risk of turnover has a mediating effect in the relationship between environmental regulation through carbon emission reduction policy and turnover intention. However, green transformational leadership has an inhibiting effect on the perception of turnover risk and turnover intention among employees. This research has crucial theoretical significance for the transformation of energy-intensive enterprises and promoting the sustainable development of energy-intensive enterprises in China.
... In the last few years, research related to green innovation-and what drives it-has been increasing rapidly [10]. At the same time, the definition of green innovation has expanded. ...
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Corporate green innovation is an effective way to achieve energy conservation and emission reduction. Enterprises’ willingness to pursue green innovation is increasingly affected by external factors. By using a quasi-natural experiment of China’s Stock Connect program, we investigate the impact of stock market liberalization on corporate green innovation. We find that stock market liberalization increases enterprises’ green innovation, especially for state-owned enterprises. We also find that stock market liberalization plays a stronger role in promoting the green invention patents of enterprises whose managers have overseas experience and enterprises in areas with a higher degree of openness. Our mechanism analysis suggests that stock market liberalization attracts the attention of securities analysts and increases managers’ focus on environmental protection, thereby promoting corporate green innovation. Our findings show that stock market liberalization plays an important role in the governance of firms’ non-financial behavior, which has important theoretical and practical implications.
... In recent years, with the deterioration of the natural environment, calls for considering both economic development and environmental protection have been rapidly increasing. In practice, environment-friendly manufacturing enterprises, which refer to firms that are embedded in the business field of environmental protection products, e.g., clean energy production, water conservation equipment, and recycling products, are the main force for realizing environmental protection via commercial methods [1]; hence, the development and performance of these firms is vital to the economy and the environment [2]. In this context, China, which is one of the largest emerging markets and most polluting countries, has implemented a green credit policy to financially support environment-friendly manufacturing enterprises. ...
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According to previous studies, China’s green credit policy, which was launched in 2012, increases environment-friendly manufacturing enterprises’ loan amounts. In this paper, we focus on a redistribution mechanism among environment-friendly manufacturing firms, namely, we determine whether the effects of the green credit policy differ between small and medium-sized environment-friendly manufacturing enterprises (SMEMEs) and large environment-friendly manufacturing enterprises (LEMEs). Using a difference in difference model (DID) and a difference in difference in difference model (DDD), we find that SMEMEs obtain more loans than LEMEs due to the green credit policy. We further analyze three potential foundations of this redistribution mechanism: information asymmetry, financial development, and government environmental investment. The results demonstrate that the redistribution effect occurs in both low and high information asymmetry conditions but only in regions with satisfactory financial development and with lower government environmental investment. Our findings enrich the literature on green credit, sustainable finance, and small finance, and they provide references for enterprises, banks, and governments.
... 186 Resource extraction companies, including mining and oil and gas companies, were actually the early adopters-the reason for greaterthan-required transparency was to win the trust of investors and to proactively address the concerns of potential detractors. 187 In Iwokrama's case, they could not apply for international grants without submitting audited financial statements; 188 the most recent available is included in Appendix G. ...
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In a rarely visited corner of the Amazon biome is an entity whose predicament is both unique and relatable, and whose fate is tied to that of local Indigenous peoples, as well as the climate of the world: the Iwokrama International Centre for Rainforest Conservation and Development in Guyana. This case answers calls for more transdisciplinary efforts in scholarship and teaching, and is intended to both serve as a basis for conversations with students as well as a springboard for further research.
... Some researchers pay attention to the relationship between environmental management and firm performance. For example, Lu et al. [1] shows that environmental management has no significant effect on firm value, and the prior financial performance does not affect the level of environmental management. Many researchers focus on the measures taken to improve the degree of environment-friendly in the manufacturing process. ...
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Many small manufacturing factories suffer insufficient environment-friendly capacity after eliminating the outdated and environmental-harmful production capacity according to stringent environmental rules and regulations. This paper analyzes two strategies that the manufacturer with limited environment-friendly capacity may take to tackle this problem, i.e., investing in building environment-friendly capacities and collaborating with the manufacturer with sufficient environment-friendly capacity in capacity sharing. In a supply chain with two competing manufacturers, this paper builds game-theoretical models and investigates equilibrium solutions under three scenarios (no capacity investment or sharing, capacity investment, and capacity sharing). Then this research investigates the feasible regions of these two strategies and compares the performance of each manufacturer under each scenario. The findings show that both capacity investment and capacity sharing can effectively reduce the profit loss of the manufacturer with limited capacity, while only capacity sharing benefits both manufacturers. The feasibility of these two strategies depends on the initial capacity volume and the capacity investment cost coefficient of the manufacturer with limited capacity. Moreover, the preference of the manufacturer with limited capacity for each strategy depends on the capacity investment cost coefficient. When the capacity investment cost coefficient is relatively high, the win-win situation exists for supply chain members. Furthermore, with the use of chaos theory, the paper shows how to adjust the capacity investment in each period to keep the system stable.
... An outstanding number of studies on corporate ESG initiatives Sustainability 2020, 12, 3380 2 of 18 have focused on their measurement and their link to economic performance [6][7][8][9][10]. Some studies confirmed their positive relationship from the perspective of financial performance and marketing performance [9][10][11][12] and identified the mechanisms linking them to issues such as stakeholder identification [13,14], corporate reputation [15,16], corporate image [17], customer satisfaction [18] and employee engagement [19,20]. Other studies regarded corporate ESG initiatives as a cost, which limits the firms' strategic alternatives and reduces their short-term benefits [21,22]. ...
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Corporate sustainability has been a long-established topic in the corporate operating process. Much research focuses on the internal relationships among environmental, social and economic dimensions of corporate sustainability, yet few studies have examined the topic from the perspective of environmental, social and governance (ESG) initiatives and innovative performance. Using insights from stakeholder theory, this study develops theoretical linkages between corporate ESG initiatives and innovative performance. It further considers whether these relationships still exist under different institutional development settings. Based on the samples of 433 observations which are listed on the Shanghai and Shenzhen stock exchanges, in China, from 2007 to 2017, empirical results using the method of hierarchical regression analysis have confirmed that corporate environmental initiatives, social initiatives and governance initiatives have direct positive impacts on innovative performance. Furthermore, in examining the interactive effect of individual dimensions of ESG initiatives, the results reveal that corporate governance initiatives play a moderating role in the relationship between environmental initiatives and innovative performance and in the relationship between social initiatives and innovative performance. Finally, the empirical analyses also show that institutional development influences the effectiveness of corporate governance initiatives. This research contributes to extending the prior literature and providing several recommendations for firms to achieve corporate sustainability.
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The ability of using internally generated funds to finance investments affects corporate sustainability. We empirically examine trends and gaps in the reliance of company’s investments on internally generated funds. We collect financial data of Chinese listed companies from 1998 to 2020, use corporate cash flow as a proxy for internally generated funds, control for corporate investment opportunity Q, and specify a two-way fixed effects model of investment on cash flow. We find that investment-cash flow sensitivity exhibits a decreasing trend over time; firm size, government equity, and the HP and WW indices effectively explain the gaps in the sensitivity of investment to cash flow between two types of firms with tighter and looser financing constraints, but cash dividends do not explain the gaps; and the gaps in the sensitivity of investment to cash flow are narrowing in the long term. These empirical findings indicate that compared to external funding, internal funding is becoming less important in supporting a firm’s investment-induced sustainability.
Purpose – While progress has been made in the realm of teaching about sustainability to business students, integrating sustainability into experiential learning with a systemic mindset has been identified by leading scholars as an area for improvement. The key objective of this paper is to describe a pilot project in which students prepared a sustainability report for a client company, and to answer the question of whether the experiment yielded the anticipated benefits. Approach – The paper presents an initiative that was part of an MBA course delivered at the Warsaw University of Life Sciences in Poland by an international team of professors. The multinational group of students was confronted with the task of preparing an integrated sustainability report for a large corporation. Findings – The initiative creates opportunities for both students and commercial organizations to understand large business commercial activities from a sustainability perspective. We identify next steps for others to build upon. Originality/value – The paper explains the experiential learning opportunity that was created, describes how students rose to meet the challenge, discusses the benefits that accrued to students, professors and a commercial organization, and shares some guidance for those seeking to emulate this practice. Keywords Sustainability education, experiential learning, sustainability reporting, interactive case study, sustainable development Paper Type Research Article Classification Case Study
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This essay surveys legal issues raised by the wave of technological innovations that are defining the present era, known as Industry 4.0. These include the standards governing the gathering, keeping, use, and transfer of data, defining relationships when technology enables novel employment interactions, and fundamental questions about liability and legal personhood. After examining these distinct directions for future research, the essay concludes by urging that those of us in the legal profession—academics, practicing attorneys, judges, and policy-makers—become uncharacteristically proactive. It is explained that, absent our proactive involvement, advances in technology alone are not likely to bring about fundamental progress away from fundamental societal problems rooted in the 1st Industrial Revolution.
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Although researchers have applied different theoretical perspectives to illustrate the relationship between corporate environmental responsibility and profitability, to date theories are contested and empirical findings are inconclusive. Therefore, the aim of this research was to present empirical evidence regarding the influence of engaging in environmental responsibility on corporate market value, as the first study to be applied in the Egyptian context. The findings demonstrate that the market compensates those firms that care for their environment, as environmental responsibility exerted a positive and significant coefficient on the firm market value measured by Tobin's q ratio. This aligns stakeholder theory as well as resource-based theory arguments, and provides supporting evidence for those studies that have concluded that it pays to be environmentally responsive. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment.
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The links between corporate environmental protection and economic success have been analysed vigorously in several theoretical and empirical studies. Most studies are based on the hypothesis that the amount of environmental protection is somehow – negatively or positively – correlated with the economic success of the company.We argue that the amount of corporate environmental protection per se neither spurs nor reduces shareholder value, which is maybe the most important measure of economic success at present. Moreover, the effect environmental protection exerts on shareholder value is determined by the manner in which corporate environmental management is practised.Referring to the value drivers of shareholder value, we discuss the characteristics necessary to increase shareholder value, or at least to contain any reduction as effectively as possible. Copyright © 2000 John Wiley & Sons, Ltd and ERP Environment
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With the worldwide increase in the adoption of environmental management systems (EMSs), some research has emerged that evaluates the reasons why facilities adopt them. However, there is little information about how these motivations extend to different international settings, and the link between the comprehensiveness of an EMS and business performance has yet to be demonstrated. While both institutional pressures and resources and capabilities may encourage EMS adoption and improved business performance, questions remain about whether organizations that are motivated mainly by their resources and capabilities benefit to the same extent as organizations that are driven to adopt an EMS mainly because of institutional pressures. We analyze these relationships using OECD survey data from manufacturing facilities operating in Canada, Germany, Hungary, and the United States. Our results show that facilities that are motivated to adopt more comprehensive EMSs because of their complementary resources and capabilities, such as export orientation, employee commitment and environmental R&D, (as opposed to institutional pressures) observe greater overall facility-level business performance.
Article
The purpose of this study is to examine the current practices of relatively large corporations concerning the relationship between environmental disclosures and financial performance. An examination of 469 firms listed in the 1994 Forbes 500 was conducted. The results showed that firms classified as high financial performers had higher incidences of environmental policies and/or descriptions of environmental commitment than firms classified as low performers. Firms classified as medium financial performers had the highest incidences of firm environmental policies and/or a description of their environmental commitment. Copyright © 2000 John Wiley & Sons, Ltd and ERP Environment
Article
In the past two decades, academics and practitioners have attempted to improve understanding of environmental management by classifying companies' environmental behaviour, and evaluating their performance. Driven by both research and societal interest, this has resulted in a wave of stage or phase models, and a range of typologies. This article gives an overview of the development of such environmental management models, analysing their characteristics, strengths and weaknesses. An evolution can be noted in the direction of typologies and non-linear models to deal with organisational and strategic complexities. Models are starting to pay more attention to the management side. To overcome problems of operationalisation and limited company- and sector-specificity, environmental performance evaluation systems have emerged more recently. Although comprehensive performance assessments are still unavailable, the tenets of such a system can already be delineated. The paper presents these components, and draws conclusions on the contribution of environmental management models and performance evaluation systems.
Article
Strategic managers are consistently faced with the decision of how to allocate scarce corporate resources in an environment that is placing more and more pressures on them. Recent scholarship in strategic management suggests that many of these pressures come directly from sources associated with social issues in management, rather than traditional arenas of strategic management. Using a greatly improved source of data on corporate social performance, this paper reports the results of a rigorous study of the empirical linkages between financial and social performance. Corporate social performance (CSP) is found to be positively associated with prior financial performance, supporting the theory that slack resource availability and CSP are positively related. CSP is also found to be positively associated with future financial performance, supporting the theory that good management and CSP are positively related.© 1997 by John Wiley & Sons, Ltd
Article
While many third-party organizations are practically evaluating corporate environmental performance (CEP), few academic studies have paid attention to third-party environmental performance evaluation (EPE). To answer the question of what should be measured for third-party EPE, we develop an environmental performance measurement (EPM) model consisting of environmental management performance (EMP) and environmental operational performance (EOP), and hypothesize that EMP be measured by four management performance indicators (MPIs: organizational system, stakeholder relations, operational countermeasures and environmental tracking) and EOP be measured by two operational performance indicators (OPIs: inputs and outputs). Further, to answer the question of how to enable third-party EPE comparable across companies from different (sub-)sectors, we propose to use the environmental intensity change index (EICI) as a measure of OPIs. Empirical tests confirm that the EICI and the evaluation based on it are comparable across companies from different sub-sectors. Empirical tests also support the existence of the MPIs and OPIs and the two-dimensioned constructs of CEP. Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment.
Article
This paper examines the relationship between the environmental and economic performance of firms in the European paper manufacturing industry. It initially discusses possible functional relationships between environmental and economic performance rooted in different theoretical frameworks and links these to recent empirical and theoretical analyses of the Porter hypothesis. Following this, it reports the results of an empirical study carried out in the European paper industry. Findings fit better with ‘traditionalist’ reasoning about the relationship between environmental and economic performance, which predicts the relationship to be uniformly negative. In particular they confirm the necessity for a more differentiated view of the Porter hypothesis. Copyright © 2002 John Wiley & Sons, Ltd. and ERP Environment.
Article
Environmental policy in the UK has tended to reflect orthodox textbook responses, focusing upon standard setting and taxation, both impacting upon the supply side of the economy. In addition, economic agents have the option of legal recourse to settle environmental disputes. Complementing this command and control framework is a growing tendency for firms to subscribe to additional voluntary environmental standards by, for example, registering with an appropriate agency, thereby signalling to others that they have adopted a particular scheme. This growing trend has far reaching consequences for future policy decisions and for financial and environmental performance of the firms.We aim here to identify the attributes of many firms which participate in ISO 14001. We use a probit model to determine, from a vector of firm and industry characteristics at one point in time, what factors influence the probability of firms registering with ISO 14001. We then utilize survival analysis to analyse how these characteristics impact upon the ‘hazard’ of accreditation over time. If significant differences exist between 14001 firms and others, important questions arise for academics and practitioners alike. Are certain types of firm hindered by their firm characteristics? Does the scheme favour larger firms over smaller firms, or high tech firms over low tech? Why do some industries have many accreditations whilst others have none? The analysis of such issues is not only an under-developed area of academic debate, but also of direct relevance to practitioners within the field of environmental management and policy. Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment