Environmental cost accounting and financial performance: The mediating role of environmental performance

Hamzah Al-Mawali

doi:10.5267/j.ac.2021.1.005

Abstract

This study aims to investigate both the direct and indirect relationships between Environmental Cost Accounting (ECA), Environmental Performance (EP) and Financial Performance (FP). The samples are companies listed in the industrial sector of Amman Stock Exchange. Subjective data using questionnaire are collected to measure ECA and EP, and objective data are obtained from the companies’ annual reports to measure FP. The author used structural equation modeling to analyze the data. The results showed that ECA positively affected EP and FP, also ECA positively affected EP. Moreover, the results confirmed the mediation role of EP on the direct relationship between ECA and FP. This study contributes to the management accounting literature and contingency theory by using structural equation modeling to examine the above-mentioned relationships, which have been neglected in previous studies, and by analyzing more recent data from a developing country perspective. The results will be useful for practitioners in Jordan, especially for management in the industrial companies and the Ministry of Environment.

Highlights

Organizational performance has long been considered as the core interest for management accounting researchers and managers (Otley, 2016)
This study aims to investigate both the direct and indirect relationships between Environmental Cost Accounting (ECA), Environmental Performance (EP) and Financial Performance (FP)
Rapid changes in elements of the business environment have contributed to the emergence of different non-FP indicators to give a clearer picture and provide managers with non-financial information to deal with changes in the contemporary business environment

Summary

Introduction

Organizational performance has long been considered as the core interest for management accounting researchers and managers (Otley, 2016). Even though Financial Performance (FP) indicators have been widely criticized (Kaplan & Norton, 2001, Al-Mawali et al, 2012), as this is historical and internal rather than future and externally oriented, it is still the main dimension used in evaluating organizational performance. Rapid changes in elements of the business environment have contributed to the emergence of different non-FP indicators to give a clearer picture and provide managers with non-financial information to deal with changes in the contemporary business environment. The importance of Environmental Performance (EP) and the need to evaluate environmental organizational performance have been documented in many reports issued by global organizations such as the UN as well as in studies (e.g., Beer & Friend, 2005; Phan et al, 2018), limited research was given to this subject in developing countries (Al-Mawali et al, 2018)

Objectives

Methods

Results