Environmental Firm Performance Research Articles

CEO age and corporate environmental policies

This study examines the link between CEO age and firm environmental performance. Building on the upper echelons theory, we predict that a firm is more environmentally friendly if CEOs are younger. Using hand-collected data of a total 12,512 plant-year observations for 1,074 individual firms in the period from 2010 to 2022, we document evidence that younger CEOs release significantly less greenhouse gas emissions, consistent with our conjecture. Additionally, we note that younger CEOs outperform older CEOs in terms of greenhouse gas emissions by investing more in abatement initiatives, increasing manufacturing efficiency, and increasing their use of ecologically friendly fuel. Our evidence of CEO age offers relevant implications for directors, shareholders, and financial regulators.

Climate clubs and firm environmental performance: A regional institutional perspective

This research focuses on informal club-based institutions to boost a firm's engagement in environmental practices. Specifically, we investigate the effect of a firm's climate club membership on its corporate environmental performance. Our empirical analyses rely on a sample of firms from 142 Western European regions during 2011-2019. Results show that stronger climate club engagement of firms within a same region of a focal firm may act as an informal institution, improving the latter's environmental performance. We also find that the impact of those informal club-based institutions outsizes the effect exerted by the quality of formal regional institutions, and that strong informal climate club-based institutions might be able to partly replace the role of regional formal institutions in that ESG domain. Finally, we delve into several mechanisms potentially driving the observed impacts of regional formal and informal institutions on firms’ environmental performance.

Do Firms Follow through on Environmental Commitments? An Empirical Examination

In response to ever-increasing pressure from stakeholders to reduce the impact of their operations and supply chain on the natural environment, firms frequently make public commitments to improve environmental performance. However, the commitments are difficult to validate and thus of unknown quality. Understanding whether and when the commitments are valid proxies for action is essential because they are used by environmentally conscious stakeholders to assess firm environmental performance in anticipation of buying from, investing in, working for, or selling to a firm. Results from examining 442 U.S. manufacturing firms show that firms generally follow through on such commitments. Larger firms and firms with better environmental performance are more likely to follow through. However, firms tend not to follow through if they are experiencing negative environmental publicity or resource constraints at the time of the commitment. The results provide important insights for environmentally conscious stakeholders who use the commitments to determine whether to buy from, invest in, work for, or supply to a firm. The study also highlights the benefits to firm leaders of following through and provides input towards ideas that can increase follow-through. Finally, the study contributes to several streams of the research literature, including the literature evaluating environmental management, environment commitments, and environmental accidents.

Unlocking Sustainable Economic Development in Saudi Arabia through the Coffee Industry

Conducting business nowadays has become much more challenging. Sustainability is a crucial goal for all industries, including the coffee sector, which has emerged as a robust trend in the GCC (Gulf Cooperation Council), establishing Saudi Arabia as one of the pioneers in developing specialty coffee in the Gulf region. Hence, in an attempt to reveal the determinants of sustainability, this study examined the effect of collective individual capabilities (i.e., commitments, communication, connections, and coordination) on entrepreneurial resilience and the subsequent effect on economic, social, and environmental firm performance. This study used a cross-sectional design to collect quantitative data from 213 respondents using non-probability-based convenient sampling. Data were analyzed using SEM-PLS. Findings revealed that commitment has a significant positive effect on entrepreneurial resilience. On the other hand, resilience showed significant positive effects on the economic, social, and environmental performance of coffee shops in Saudi Arabia. Results further confirm a significant mediating effect of entrepreneurial resilience between commitments and economic, social, and environmental performance. Several key insights and policy implications have been drawn from the findings.

Bridging green supply chain practices and environmental performance in Chinese semiconductor sector: With the role of energy efficiency and green HRM

The semiconductor sector of China, which is an essential part of the global electronics market, is experiencing significant pressure to adopt green practices. Therefore, this study examines the role of green supply chain practices such as customer environmental collaboration, green purchasing and sustainable innovation in environmental performance. By leveraging the integrated perspective of the resource based-view, natural resource-based view and ability-motivation-opportunity as a theoretical lens, the study evaluates whether green practices lead to better environmental performance. In this study, energy efficiency is explored as a mediator between green purchasing, sustainable innovation and environmental performance, revealing its part in reaping the benefits of green initiatives. Additionally, green human resource practices are assessed as a moderator to identify how supportive such practices can be to amplify the relationship between customer environmental collaboration and firm environmental performance. Leveraging a PLS-SEM methodology, the findings reveal that environmental collaboration with customers, green purchasing and sustainable innovation directly lead to superior environmental performance. The study identifies the crucial role of energy efficiency as a mediator as it helps reinforce the effectiveness of green practices. The proven role of green human resource management as a moderator underscores the need to integrate human resource management with environmental objectives. Policymakers could take guidelines from the study to develop policies related to enhancing environmental performance using effective green supply chain practices and green human resource management practices.

Impact of Employee Environmental Concerns on Sustainable Practices: Investigating Organizational Commitment and Job Satisfaction

Environmental issues are gradually increasing due to increases in carbon emissions, overproduction, plastic use, the burning of fossil fuels, etc. Therefore, ecological sustainability is a primary concern for society and the upcoming generation. Considering this, the present research objective is to examine the factors influencing employee eco-friendly behavior (EEBH) and firm environmental performance (FEP). Cross-sectional data were accumulated from 403 employees working in casual dining restaurants in China and analyzed through partial least squares structural equation modeling (PLS–SEM) approaches (i.e., PLS algorithm, bootstrapping, blindfolding, and PLS prediction). The findings support the significant effect of environmental concern (ENVC) on employee organizational commitment (EOC), employee job satisfaction (EJoS), and EEBH. In addition, EOC and EJoS directly and indirectly influence EEBH. Furthermore, EOC also mediates the link between ENVC and EJoS. Finally, the findings also show that EEBH stimulates environmental performance. By showing the links between these elements, it has been emphasized that EEBH is a precondition of good organizational productivity and how it contributes to enhancing the EJoS and overall firm’s health. It challenges managers to create a work environment that is conducive to sustainability for improved customer relations and a strong reputation for the organization in society.

The synergistic impact of incentive and regulatory environmental policies on firms’ environmental performance

The imperative to enhance corporate environmental performance is not only pivotal for a company’s growth but also crucial for fulfilling societal responsibilities and protecting global environmental interests. Recognizing the inadequacies of standalone environmental policies, our study delves into the synergistic effects of incentive-based and regulatory approaches on the environmental performance of listed firms in China. We meticulously examine the interplay between environmental punishment and subsidies over the period of 2015–2019. Our analysis reveals that a strategic combination of punishment and subsidies can substantially improve firms' environmental performance. This effect intensifies with the increasing amounts of fines and subsidies. Additionally, we explore the dynamic effects of policy implementation. Our results indicate that subsidies implemented either a year before or after the imposition of punishment might diminish the effectiveness of standalone environmental penalty policies. Furthermore, our findings suggest that diverse regulatory policies enhance firm environmental performance by promoting investments in environmental protection and fostering green innovation. This discovery highlights the need for a nuanced understanding of policy mixes and their implications for corporate environmental strategies.

Leveraging employee green entrepreneurial orientation for enhancing environmental performance: The multi-level role of green creativity and green decision comprehensiveness

In view of increasing demands for employees engaging in environmental sustainability, the authors suggest firms can use employee green entrepreneurial orientation (eGEO) to enhance their environmental performance. Relying on the natural resource-based view as the underlying theoretical foundation and the source–position–performance model as the overarching framework, the authors propose a theoretical model across employee and firm levels to examine how eGEO promotes employee and firm environmental performance. Using multi-source surveys and secondary proxy data through multiple waves of data collection from 246 firms, the results indicate that eGEO has a positive indirect effect on employee environmental performance through employee green creativity and a positive indirect effect on firm environmental performance through firm green creativity. The results further indicate that green decision comprehensiveness strengthens these effects. This study contributes to research on green entrepreneurship by focusing on a novel characteristic of eGEO and by underscoring the necessity of treating green creativity as separate dimensions, employee and firm, that relate eGEO and environmental performance. It also contributes to research on strategic decision-making by revealing which strategic decision processes encourage eGEO in both employee and firm green creativity.

Boosting Firm Environmental Performance: The Roles of Top Management Team Functional Diversity, Environmental Disclosures, and Government Subsidy

Contemporary organizations are actively striving to achieve a higher level of environmental performance (the extent to which the organization reduces and minimizes its negative impact on the natural environment). This pursuit is not only driven by the need to comply with governmental climate change regulations but also by the desire to gain a competitive advantage. While a limited number of studies have acknowledged the importance of top executives’ strategy-making on firms’ environmental performance, questions still persist regarding how the role structure of the top management team (TMT) promotes the disclosure of environmental policies, and subsequently enhances firm environmental performance. Based on the attention-based view and resource-dependency perspective, this study aims to examine how TMT functional diversity is beneficial for formulating better environmental disclosures, which in turn, is expected to increase environmental performance. Additionally, we explore the extent to which external resources (i.e., government subsidies) can strengthen this relationship. We employed an archival dataset from 406 Chinese manufacturing firms over a ten-year period (2010–2019) and tested a moderated mediation model. Our findings suggest that greater functional diversity within TMTs positively influences firm environmental performance through the improved environmental disclosures, and this indirect effect is amplified when firms receive higher levels of government subsidies. Our study contributes to the existing literature on environmental governance by demonstrating that (1) functional diversity within the TMT can predict more favorable environmental performance metrics; and (2) government financial support can particularly be a booster for the relationship between TMT environmental disclosures and firm environmental performance.

Co‐opted Independent Directors and Firms' Environmental Performance

ABSTRACTResearch Question/IssueConsidering escalating environmental concerns and the important role of board members in shaping strategic corporate decisions, we investigate the relationship between co‐opted independent directors and firms' environmental performance.Research Findings/InsightsExamining US firms from 2002 to 2018, we document a significant negative relationship between co‐opted independent directors and firm environmental performance. Our findings show that while institutional ownership and CEO power exacerbate the negative association, strong corporate governance mitigates this negative impact of co‐opted independent directors on environmental performance. The cross‐sectional results show that the relationship is pronounced in firms with young CEOs, male CEOs, and low CEO compensation. Further, the relationship is also prevalent in boards with fewer meetings, high multiple directors, and higher compensation, indicating a monitoring compromise by independent co‐opted directors.Theoretical/Academic ImplicationsReasonable theoretical arguments are drawn from agency theory and the theory of friendly boards, and our statistical analysis supports the academic position of the theory of friendly boards. The negative effect of independent co‐opted directors on firm environmental performance challenges the role of independent directors in addressing agency issues in environmental efforts, hinting at a departure from conventional agency theory expectations.Practitioner/Policy ImplicationsTo improve environmental performance, firms should reconsider their board structures, acknowledging the potential drawbacks of co‐opted independent directors. Our findings challenge the Sarbanes–Oxley Act's (SOX) emphasis on increasing the number of outside directors, which assumes independent board members will rigorously oversee executives. Such legislation is greatly based on the premise that independent board members strictly monitor executives. However, our findings indicate that not all independent directors are strict monitors, as demonstrated by lower environmental performance when there are more co‐opted independent directors.

Environmental regulations and firms’ integration in global markets: using a new environmental performance index

This paper investigates how the environmental performance of firms impacts their participation in global value chains (GVC). The analysis is based on a dataset of 15,922 firms located in 32 European, Central Asian, Middle Eastern, and North African countries, with information on firm-level environmental practices provided by the recent Green Economy module of the World Bank Enterprise Surveys. We propose the Firm Environmental Performance Index (FEPI), a new index measuring firms’ adoption of environmental actions. The index is used in a two-part instrumental variable approach to estimate the impact of FEPI on both the probability and the intensity of GVC participation, while addressing reverse causality concerns. The results indicate that a one-standard deviation increase in the FEPI increases the probability of participation by 6.4 percentage points, a result consistently observed in all regions and sectors. The effects on the intensity of participation are mostly non-significant. However, a negative effect is observed in exceptional cases, namely for firms that are importers only, have low-technology practices, and are located in less developed regions. The results are robust to alternative definitions of GVC participation, inclusion of alternative instruments, and to partial violations of the exclusion restriction. All in all, they suggest that complying with environmental regulations could lead to higher integration in global markets, albeit with adverse effects in some particular cases.

How does CEO ethical leadership transform Saudi SMEs into green firms? A moderated mediation model

AbstractIn the aftermath of global warming, companies face huge pressure to minimize waste, reduce carbon emissions, and generally become more responsible in their operations. Against this backdrop, researchers argue that top management can significantly shape a firm's environmental performance (EP). This research aims to investigate the impact of CEO ethical leadership style on Saudi firms' EP in the presence of green human resource management (GHRM) practices as a mediator and stakeholder pressure as a moderator. We utilize the resource‐based view and stakeholder theory to develop hypotheses on these relationships. Multisourced data were collected from 272 small and medium‐sized manufacturing enterprises (SMEs) in Saudi Arabia. Our findings revealed that CEO ethical leadership positively influences firm EP via GHRM practices. The results also indicated that stakeholder pressure moderates the direct relationship between CEO ethical leadership and GHRM practices. Moreover, the stakeholder pressure moderates the indirect effect of CEO ethical leadership on firms' EP via GHRM. This study suggests that stakeholder pressure and GHRM practices are important mechanisms between CEO ethical leadership and firms' EP. Our research highlights essential theoretical and empirical contributions and provides insights for HR practitioners when and why SMEs engage in environment‐friendly practices.

Corporate governance and green innovation: international evidence

PurposeThis study aims to exploit Tobin’s Q model of investment to examine the relationship between corporate governance and green innovation.Design/methodology/approachThe study is based on a sample of 3,896 firms from 2002 to 2021, covering 45 countries worldwide. The authors adopt Tobin’s Q model to conceptualize the relationship between corporate governance and investment in green research and development (R&D). The authors argue that agency costs and financial market frictions affect corporate investment and are fundamental factors in R&D activities. By limiting agency conflicts, effective governance favors efficiency, facilitates access to external financing and encourages green innovation. The authors analyzed the causal effect by using the system-generalized method of moments (system-GMM).FindingsThe results reveal that the better the corporate governance, the more the firm invests in green R&D. A 1%-point increase in the corporate governance ratings leads to an increase in green R&D expenses to the total asset ratio of about 0.77 percentage points. In addition, an increase in the score of each dimension (strategy, management and shareholder) of corporate governance results in an increase in the probability of green product innovation. Finally, green innovation is positively related to firm environmental performance, including emission reduction and resource use efficiency.Practical implicationsThe findings provide implications to support managers and policymakers on how to improve sustainability through corporate governance. Governance mechanisms will help resolve agency problems and, in turn, encourage green innovation.Social implicationsUnderstanding the impact of corporate governance on green innovation may help firms combat climate change, a crucial societal concern. The present study helps achieve one of the precious UN’s sustainable development goals: Goal 13 on climate action.Originality/valueThis study goes beyond previous research by adopting Tobin’s Q model to examine the relationship between corporate governance and green R&D investment. Overall, the results suggest that effective corporate governance is necessary for environmental efficiency.

Does firm environmental performance mitigate the market reaction to COVID-19 uncertainty?

This paper investigates how firms’ environmental performance affected the market reaction caused by the uncertainty of the COVID-19 pandemic. Our analysis focuses on a sample of 3854 non-financial listed companies from 21 advanced economies. We find that high environmentally sustainable practices (ESP) are associated with lower returns during the COVID-19 crisis, especially when the pandemic began to spread globally. Also, our results show that ESP is not significantly related to volatility in the whole COVID-19 period. We find a positive relationship between ESP and volatility only in the early phases of the pandemic. The stronger contraction in earnings and cash flow forecasts for high ESP firms explains the negative effect of ESP on market returns. The cost structure of high ESP firms makes them more exposed to the unexpected global demand shock. Our findings suggest that firm environmental performance did not immunise against market turmoil.

Does green finance enable firms to promote environmental performance: Evidence from random forest methods?

There is a limited body of research that specifically examines the influence of green finance on the environmental performance of enterprises. Employing the panel data of Chinese A-share listed firms from 2012 to 2017 and random forest methods, we intend to examine whether green finance contributes to promoting firms’ environmental performance. If yes, how does green finance promote firms’ environmental performance? Using various empirical tests, we obtain the main results as follows: First, the baseline results show that green finance is conducive to improving firms’ environmental performance. The baseline results are supported in various model settings, including Difference-In-Difference (DID), Bayesian Additive Regression Trees (BART), and matching approaches. Secondly, the internal mechanism tests show that a rise in green innovation and an improvement in green investment efficiency are the main channels through which green finance helps to improve firms’ environmental performance. In addition, considering firm-scale heterogeneity and ownership heterogeneity, we conduct heterogeneity checks. The results of heterogeneity checks show that the positive effect of green finance on the environmental performance of firms is only pronounced for small- and medium-scale firms and for non-state-owned enterprises. Our study expands the framework of green finance research on firms’ environmental performance and provides practical implications for the development of strategies for emerging economies.

Contributions of Financial Resource Availability on Green Supply Chain Management and Firm Environmental Performance in Manufacturing Firms: Evidence from Kumasi Metropolis, Ghana

Purpose: The notion of sustainability has attracted many researchers and practitioners' attention across the world. In a world where there is an increasing interest in protecting the environment, practitioners are encouraged to adopt sustainability and be environmentally conscious. In pursuit of this initiative, this study seeks to assess the extent to which manufacturing firms in Kumasi practice Green Supply Chain Management and whether the availability of financial resources plays a contingency role in the relationship between green supply chain management and firm environmental performance.
 Methodology: The study relies on a quantitative research approach using a survey design. Data analysis was done using descriptive and inferential statistics with the aid of SPSS software.
 Findings: The study concludes that financial resource availability moderates the relationship between green supply chain management and firm environmental performance. Therefore, an increase in financial resource availability has an influence on green supply chain management and firm environmental performance.
 Unique contribution to theory, practice and policy: The study recommends contemporary innovative ways to improve upon green supply chain practices as they affect how the organization performs environmentally.

Does government fiscal pressure matter for firm environmental performance? The role of environmental regulation and tax competition

Concerns about firm pollution have entered the global spotlight in recent years, emphasizing the central role that governments play in addressing this pressing issue Existing literature mostly focuses on the influence of government regulations on the environment, with limited attention given to the role of government fiscal pressure. Leveraging detailed firm-level data from 2000 to 2007, we investigate the causal effect of fiscal pressure, stemming from China’s Income Tax Sharing reform on the local environment. Employing a difference-in-differences estimation, we find that such fiscal pressure amplifies sulfur dioxide emission intensity, especially in non-state-owned, large-scale firms and small to medium-sized cities. We argue that this fiscal tension not only prompts local authorities to ease environmental regulations but also escalates a downward spiral in tax competition, fostering environments conducive to pollution, thereby deteriorating local environmental quality.

How does digital finance affect firm environmental, social and governance (ESG) performance? — Evidence from Chinese listed firms

The use of digital finance to promote firm environmental, social, and governance (ESG) fulfillment is the key to achieving sustainable development. This study uses the data of Chinese listed firms from 2010 to 2019 and China Digital Financial Inclusion Index of Peking University to empirically examine the impact and mechanism of digital finance on firm ESG performance. Results show that digital finance significantly and positively impacts firm ESG performance. Mechanism tests reveal that digital finance influences ESG performance by promoting firm green innovation, improving firm goodwill and reducing agency costs. Moreover, political connections negatively moderate the relationship between digital finance and firm ESG performance, while regional institutional development positively moderates this relationship. Subdivision of digital finance dimension test shows that the main factors affecting ESG performance are the depth of use and the degree of digitization, while the breadth of coverage is not significant. Digital finance can also promote firm innovation by promoting ESG performance. This study integrates the value effect of digital finance with the concept of sustainable development, which has important theoretical and practical significance.

Does green credit promote firm environmental performance? A new perspective of economic growth target constraints.

Green credit encompasses financial instruments and services utilized to mitigate greenhouse gas emissions and facilitate adaptation to global climate change. Establishing a long-term stable green credit institution is crucial to promoting carbon abatement goals. This study uses the difference-in-difference (DID) model to discuss the impact of green credit policy (GCP) on environmental performance based on the China industrial enterprise data. Our results show that GCP inhibits the pollution emissions and improve firm environmental performance. This improvement effect is attributed to a reduction in production scale, and financing constraints. Moreover, GCP increases the firms' exit risk from market and promotes the technological innovation of incumbent firms. Economic growth target constraints trigger a positive moderation role in the implementation of GCP. Heterogeneity results show that such improvement effect is more pronounced in state-owned firm, large-scale firms, and high R&D intensity firms. Importantly, our findings also suggest the environmental monitoring effect of green credit is dependent on the institutional quality. Only in a sound market environment can GCP effectively improve firm environmental performance. Finally, we propose to build a systematic incentives and constraints mechanism to achieve the sustainable development. The conclusions of this paper provide empirical evidence and policy implications for the implementation of GCP.

Environmental performance and the role of government support: Evidence from the recent COVID-19 pandemic

This paper investigates whether good firm environmental performance attracted government support. Furthermore, we explore the effect of different government measures such as access to new credit, cash transfers, fiscal exemptions or reductions, and wage subsidies. The COVID-19 data were collected from the COVID-19 follow-up survey, while environmental data are from the World Bank Enterprise Surveys. Our results show that 21% of the firms received wage subsidies, 10% received cash and exemption support and only 6% of firms received credit support. The results indicate that the probability of receiving government support increases if firms have a good environmental performance score.