Role of lean manufacturing and environmental management practices in eliciting environmental and financial performance: the contingent effect of institutional pressures

Abstract

This study aims to examine the impact of firm lean manufacturing (LM) and environmental management (EM) practices on firm performance (i.e., environmental and financial performance). Drawing upon institutional theory, we also examine the moderating effect of institutional pressures in adopting EM practices and their subsequent effects on firm performance. The data were collected from 178 textile manufacturing firms operating in Pakistan. Covariance-based structural equation modeling was used to test the hypothesized relationships. Findings support the positive direct effect of LM practices on EM practices and the indirect effect on environmental performance which ultimately increases financial performance. Institutional pressures moderate the direct effect of EM practices on environmental performance. Firms are advised to implement LM accompanied by EM practices to ensure the protection of the natural environment as well as to enhance profit-making capability, in the long run. Further, firms can also enhance environmental performance capabilities through strict synchronization of EM practices with institutional pressures. This research fills the literature gap by investigating the effects of firm's EM practices on environmental and financial performance under the contingent effect of institutional pressures. The study also provides important implications for firms and practitioners.