Business strategy and environmental inefficiency

Abstract

This study examines the relationship between firm-level business strategy and environmental inefficiency, measured by the total amount of chemical releases reported to the U.S. Environmental Protection Agency’s (EPA) Toxics Release Inventory (TRI). Based on Miles and Snow’s (1978, 2003) organizational theory, we consider the environmental inefficiency of Prospector and Defender business strategy types. Using a large sample of U.S. data spanning the period 1990–2014, we find that prospector-type firms reduce their toxic chemicals, relative to defender-type strategy firms. Our findings remain robust to fixed effects regression, 2SLS analysis, and the Granger-Causality test. This study offers useful insights to environmentally concerned policymakers, regulators, and investment strategists. From a practical point of view, our results suggest that a firm’s business strategy could determine how it responds to the need for protecting the natural environment. By integrating strategic management and environmental sustainability research, we offer new insights into how business strategies shape firms’ responses to environmental efficiency.