The relationship between environmental management performance and financial performance of firms listed in the Alternative Investment Market (AIM) in the UK

Abstract

This paper examines the relationship between environmental management and SMEs performance. The study adopts General Methods of Moments (GMM) on a sample of 201 quoted Small and Medium Enterprises (SMEs) on the United Kingdom (UK) Alternative Investment Market (AIM) from 2011 to 2016. Consistent with our prediction based on contradictory results of existing studies, the study documents that corporate investment channelled through efficient environmental management translates into superior SME performance. In particular, we find a non-monotonic (inverted U-shaped) relationship between environmental management and financial performance, which suggests that SMEs have an optimal environmental management level that maximises their performance. We find the predictability to be stronger among medium and larger firms, where both ROA and Tobin’s q revealed a significant relationship with environmental performance. The implication of the findings and recommendations are discussed.