Threshold Effect Analysis of the Relationship between Environmental Responsibility and Financial Performance

Abstract

The paper examines environmental responsibility threshold effect on the financial performance of JSE SRI’s firms for the period 2008–2014. Employing bootstrap dynamic panel threshold estimations, the paper confirms the existence of triple threshold in all the regression relationship. Furthermore, the study established a nonlinear (inverted U-shape) association between environmental initiative,measured by energy usage intensity and return on sale, and a linear (inverse U-shape) relationship between carbon input intensity and market value of equity deflated by sale.We also found that return on sale decreases by –0.08868 when environmental responsibility, measured by energy usage intensity ratio exceeds 0.00093. The results however showed that an increase in energy usage intensity ratio at any point increases equity returns.