Testing the impact of sustainable environmental regulations on firm performance with mediating effect of product market competition: empirical evidence from Turkey.

Abstract

Environmental challenges are increasingly becoming global issues due to the negatively induced effect of carbon dioxide on the natural climate and the well-being of human beings. Industrialisation has intensified the energy demand which brought the surge in the consumption of conventional non-renewable energy resources, including fossil fuels. Despite the overwhelming evidence of negative effects of utilising conventional energy on the atmosphere, there has been a steady rise in industrial production which has encouraged firms to adopt technological innovation. In this sense, many countries have developed various strategies, frameworks and regulations to reduce industrial-driven environmental degradation. Environmental-friendly compliant production technology can be an important substitute model to improve economic development. This study examines the relationship between environmental regulation and firm performance with mediating the impact of product market competition in Turkey. The study uses multi-sectoral firm-level Turkish data covering from 2004 to 2020 which was analysed via numerous methods that control for endogeneity bias. The results of generalised method of moment indicate a strong positive effect of sustainable environmental regulation (SER) on firm performance (FP). Moreover, after mediating the effect of product market competition by decomposing the firms into low product market competition (LPMC) and high product market competition (HPMC), finding reveals a negative effect of SER on FP of LMPC whereas a positive impact was found in the HPMC firms. This finding shows that HPMC compels managers to form a differentiated profit maximisation strategy. In this sense, competition can play a dedicated role in enhancing firm performance in the context of government deliberate strategies and regulations for control of the industrial negative effect on the environment. The industrial sector needs to switch from conventional energy practices to sourcing green and renewable energy that would not jeopardise the environmental quality.