How environmental reputation and ethical behavior impact the relationship between environmental regulatory enforcement and environmental performance

Abstract

AbstractThe paper investigates the nature of the relationship between environmental regulation enforcement (ERE) and environmental performance of small and medium‐sized enterprises (SMEs). Drawing upon the institutional theory and a sample of 229 SMEs, the results indicate an inverted U‐shaped relationship between ERE and environmental performance. In addition, we theorized and found that environmental reputation moderates the U‐shaped relationship between ERE and environmental performance, such that the relationship is positive when environmental reputation is high. Moreover, the results show that organizational ethical behavior (OEB) conditions the U‐shaped relationship, such that the relationship is positive when OEB is high. In the absence of moderators, returns to environmental performance from increasing environmental regulation were observed to reach harmful levels. The theoretical and practical implications of the findings are discussed.