Abstract
The effect of economic freedom on firms’ environmental responsible management is still unconcluded. We conjecture that the effects are conditional on a firm’s internal motivation and use a large-scale survey to run an empirical test. The sample consists of 4338 small and medium-sized enterprises from twelve European countries. Distinguishing between intrinsic (environmental) and extrinsic (profit) internal motivations, we find clear support that the effects of economic freedom and intrinsic motivation on corporate environmental performance interact with each other. Our findings explain the ambiguous results of previous empirical studies at the aggregate level.
Highlights
Whether free-market capitalism is compatible with or harmful to environmental sustainability is strongly debated
Various authors argue that capitalism may inhibit corporate environmental performance, because private industry will invest in the most profitable technologies, which leads to a focus on the cheapest rather than environmentally responsible processes (Williamson et al 2006; Bell 2015)
We extend previous studies as we postulate that the corporate environmental performance (CEP) is influenced by the interaction between internal motivations and economic freedom
Summary
Whether free-market capitalism is compatible with or harmful to environmental sustainability is strongly debated. Other authors argue that economic freedom in markets and competition stimulate corporate environmental performance (CEP) (Baughn et al 2007; Jackson and Apostolakou 2010; Kinderman 2012; Hartmann and Uhlenbruck 2015), and businesses has expressed its interest in adopting a more extensive CEP approach conditional upon receiving greater freedom from the state (Kinderman 2008). A stronger protection of property rights has been found to lead to environmental improvements (Ioannou and Serafeim 2012). Free trade, another exponent of economic freedom, has ambiguous effects. Demirel et al (2018) found that effective environmental protection entails collaboration between government regulation and voluntary environmental measures. For economic freedom more generally, Jackson and Apostolakou (2010) argue and found that firms in liberal market economies outstrip firms in coordinated market economies, because their voluntary CEP initiatives substitute for the lack of government interventions. Kinderman (2012) stated that during the period of rapid deregulation and liberalization in the UK (a typical liberal market economy) CEP developed and thrived, but even managed to outperform the previous economic model in terms of corporate accountability and corporate standards
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