Unraveling the effects of environmental outcomes and processes on financial performance: A non-linear approach

Misani, Nicola and Pogutz, Stefano (2014): Unraveling the effects of environmental outcomes and processes on financial performance: A non-linear approach. Published in: Ecological Economics , Vol. 1, No. 109 (January 2015): pp. 150-160.

Abstract

We examine the roles of the outcome and process dimensions of environmental performance in determining financial performance as measured by Tobin’s q. Outcomes refer to the impacts of the firm on the natural environment, while processes are the firm’s actions to reduce these outcomes. We focus on a specific outcome—carbon emissions—and suggest that it affects Tobin’s q non-linearly. We find that firms achieve the highest financial performance when their carbon performance is neither low nor high, but intermediate. We also find that environmental processes moderate this relationship as they reinforce firms’ financial performance through improved stakeholder management. This mixed picture suggests that firms do not generally internalize the costs of poor carbon performance, but those that stand out in both environmental outcomes and processes achieve net financial benefits. These findings are based on a sample of carbon-intensive firms that disclosed their greenhouse gas (GHG) emissions through the Carbon Disclosure Project from 2007 through 2013.

• Item Type: MPRA Paper
• Language: English
• Keywords: GHG emissions; climate change; environmental management; financial performance; Tobin’s q
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C21 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L20 - General; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M13 - New Firms ; Startups; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q20 - General

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