Market performance and the loss aversion behind green management

Abstract

As societies become more concerned with environmental protection, some firms go beyond their legal obligations and proactively adopt their own green management practices even if those practices cannot produce short-term benefits. As a result, researchers have begun to question the underlying motives of these firms. Leveraging corporate loss aversion, we argue that firms that outperform their peers become more risk-seeking to avoid any future loss of competitive advantage. As a result, they become more likely to engage in stakeholder management in the form of green management practices. Specifically, we explore the Green Power Partnership (GPP) which solicits firms to purchase green power. Using the data for the green power consumed by firms that are participating in the GPP program in the United States, we find that firms with performance above social aspiration are likely to increase their use of green power. We also find that related diversification has a negative influence on such motivation.