Disentangling the Effect of Green Manufacturing Practices on a Firm’s Economic Performance

Abstract

This article explores the impact of green manufacturing practices, in the form of green activities, green investments, and the type of product made, on the economic performance of firms. Using survey data from European small- and medium-sized enterprises (SMEs), we investigate the extent to which the number of green activities, green investments and type of product made affects a firm’s economic performance. Our results reveal that while the number of green activities has a positive effect on economic performance, the amount of green manufacturing investments has an inverted U-shaped relationship to economic performance, and that this effect is positively moderated if a company also sells non-green products. Building on self-determination theory, we argue that consumers react positively to green business practices because they accurately assess technological efforts that seek to mitigate the environmental type of “grand societal challenges” that we are currently facing. Our study contributes to the literature on green manufacturing by dissecting the effect of green manufacturing practices on a company’s economic performance. Our study findings also provide managers with advice on the right balance of green practices that most benefit their companies.