Abstract
This paper examines how cash resources affect the sustainable environmental practices and financial performance of firms listed on the Alternative Investment Market (AIM) in the United Kingdom (UK). The study adopts Ordinary Least Square (OLS) regression model on 201 quoted Small and Medium Enterprises (SMEs) on the UK Alternative Investment Market (AIM) from 2011 to 2016. Consistent with our predictions and confirms with the assertions of the resource-based view, the study documents that cash resources have a positive impact on sustainable environmental practices and financial performance relationships. However, the direction of the regression coefficient was not the same for accounting (ROA) and market-based (Tobin’s q) measures of financial performance. Whereas the moderating impact between cash resources and sustainable environmental practices for ROA was negative, the relationship was positive in the case of Tobin’s q. The study, therefore, concluded that where excessive cash are employed in the management and implementation of environmental sustainability, the financial returns may not be favourable. However, efficient utilisation of cash resources may positively impact on sustainable environmental practices and financial performance relationships. The study also documented that unconstraint firms have a higher probability of benefiting financially from environmental sustainability measures than cash constraint firms. Citation: Danquah Jeff Boakye1, Gabriel Sam Ahinful2 and Randolph Nsor-Ambala3. Sustainable Environmental Practices and Financial Performance Relationships. Are they moderated by Cash Resources? Evidence from Alternative Investment Market in the United Kingdom., 2020; 5(1): 14－29. Received: (February 15, 2020) Accepted: (March 31, 2020)
Highlights
Issue of environmental sustainability has taken centre stage in many political and business platforms in recent years. Thurner & Proskuryakova (2014) indicated that environmental issues had become a significant part of management decision
The sample consists of 201 Small and Medium Enterprises (SMEs) selected from 1049 companies listed on the Alternative Investment Market (AIM) as at February 2016 from 2011 to 2016 that reported on their environmental policies and practices
Aiyub et al (2009) for instance, explained that availability of cash resources directly impacts on fund available for investment and the expectation is that firms with adequate financial resources are more likely to undertake more investment projects
Summary
Issue of environmental sustainability has taken centre stage in many political and business platforms in recent years. Thurner & Proskuryakova (2014) indicated that environmental issues had become a significant part of management decision. To encourage business practitioners to pursue sustainable environmental practices, it is essential that such environmental practices impact positively on their financial performance. Trumpp & Guenther (2017), for instance, argued that if positive association are established for sustainable policies and the bottom-line, it will encourage businesses to engage in sustainable environmental practices. Ambec et al (2013) argued that sustainable environmental practices might trigger innovation which may offset the cost of investment and impact favourable on profitability. In line with this argument, various empirical studies have established a positive correlation between environmental and financial performance relationships. Environment Agency (2003) estimated that SMEs create about 60% of waste from commercial sources in the UK and Hillary & Burr, (2011) indicated that the sheer number of SMEs with a significant number in manufacturing has the potential to exert pressure on the environment
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