Abstract

In China, more firms in the textile and apparel industry adopt environmental management systems compared to firms that manufacture other products. It is important to know how the firms’ financial and real performances are affected. We study the changes of firms’ performance in profitability, sales, and operational efficiency after environmental management system (EMS) adoption using an event study. Based on 22 events of EMS adoption, we found a significant decrease in firms’ profitability, sales, and inventory productivity. We explore the reasons which led to the decrease in firm performances. We found that the increase in sample firms’ total assets is the major reason. The loss in operational efficiency and flexibility are due to the requirements of the EMS.

Highlights

  • Being green brings both opportunities and challenges to textile and apparel firms

  • We find that the mean and median of abnormal return on asset (ROA) are −62.91% and −64.94% for the performance-matched group, both of which are significant at the 10% level

  • We study the effect of environmental management systems (EMS) adoption on the operational performance of firms in the textile and apparel industry of China

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Summary

Introduction

Being green brings both opportunities and challenges to textile and apparel firms. It helps firms to shape better public image and attract more consumers. On the other hand, being green involves an investment in clean technologies, adapting to environmentally-friendly manufacturing systems, etc. We analyze the impacts of the adoption of environmental management systems (EMS) on the firms’ financial and operational performance. We test the abnormal value of changes in sales, total assets, operating incomes, return on asset (ROA), return on sales (ROS), sales over asset (SOA), and inventory turnover during the period when firms start to formally implement EMS. Our results show that the adoption of EMS led to decreases in sales, SOA, inventory turnover, and increases in total asset

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