Corporate Environmental Responsibility and Firm Performance beyond the Boundary of the Firm

Abstract

This study explores whether corporate environmental responsibility (CER) in supply chain play an important role in improving financial performance. I examines the impact of CER from both scopes –- internal operation and supply chain –- on a firm's short-term and long-term financial performance. By employing a unique dataset about carbon footprint covering 19 industry sectors in North America for 2003–2010, I find the evidence that firms benefit not only from CER in internal operation but also from CER in their supply chain. Further, I argue that regulatory stringency weakens the positive CER effects on short-term financial performance, but it strengthens the positive CER effects on long-term financial performance. This finding is consistent with the prediction of a natural resource-based view and stakeholder theory. By investigating two distinct scopes of carbon footprint, this study sheds new light on the importance of CER not only from firms' internal operation but also from their supply chain.