Environmental Firm Performance Research Articles

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

AbstractThis 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.

The Role of Green Supply Chain Management Practices on Environmental Performance of Firms: An Exploratory Survey in Brazil

Our work is one of the rare studies that sought to verify the relationship between green supply chain management practices and environmental performance in companies in an emerging Latin American market. We surveyed in the specialized literature on environmental management and green supply chain management (GSCM) for practices were most cited and can influence this relationship. From this review, an e-survey was constructed and answered by 79 environmental or supply chain/logistics managers from the surveyed sample. The results indicate that there is a positive and significant relationship between the adoption of green supply chain management practices and the environmental performance of the companies. We found that GSCM practices: environmental management with total quality (GSCM4), cooperation with suppliers to achieve environmental management objectives (GSCM7), and cross-functional cooperation for environmental improvements (GSCM3), in this order. These are the main GSCM practices that influence the environmental performance in the surveyed companies. Thus, our study adds relevant information to the specialized literature and for the decision-making of managers, professionals, and government working in this area of study.

An Empirical Analysis of Green Absorptive Capacity, Green Innovation, and Enterprise Performance: A Green Entrepreneurship Orientation Approach

In an era of a knowledge-based economy, identifying, acquiring, and internalizing the external valuable knowledge is key to the development of enterprises. Given that few studies have adequately evaluated this phenomenon using a green entrepreneurship orientation perspective. The study employs green absorptive capacity, green innovation to access its impact on enterprise performance. Thereafter, a theoretical model depicting the impact of green absorptive capacity and green innovation on enterprise performance was constructed. To buttress the veracity of this study’s hypotheses, a survey of 219 enterprises of the Yangtze River Delta (YRD) and Pearl River Delta (PRD) of China was conducted. The empirical tests support that green absorptive capacity significantly improves green innovation capability, financial and environmental performance of enterprises in the region. More so, the findings of the study are confirmed that green technology innovation and green process innovation partially mediate the relationship between green absorptive capacity and the financial performance and environmental performance of firms. Consequently, enterprises should continuously absorb exogenous green knowledge, integrate green knowledge and technology into product design and production processes, as well as carry out innovative activities in green product development and pollution control, to sustainably improve the environmental and financial performance of relevant organizations over time.

ESG Leaders or Laggards? A Configurational Analysis of ESG Performance

We draw from resource dependence and institutional theories to explore how board characteristics associated with directors’ capacities to provide resources and legitimacy (i.e., board size, the number of non-executive, interlocking, and female directors) along with regulative, normative, and cultural-cognitive institutional conditions combine to shape firm environmental, social, and governance (ESG) performance. Using a process of configurational theorizing with fuzzy set qualitative comparative analysis and data from firms in 32 countries, we identify multiple equifinal configurations that are associated with high and low ESG performance. We find that high and low ESG performance have different drivers due to complementarities among the presence and absence of board characteristics. Our results also show that the effectiveness (or not) of the bundles of boards’ characteristics for ESG performance varies across institutional contexts. By leveraging these findings to construct a typology of board archetypes that lead to high and low ESG performance, we offer novel theoretical and empirical insights to scholars as well as implications for practice.

The agency of greenwashing

AbstractAs climate change increasingly challenges business models, the disclosure of firm environmental performance casts growing attention by corporate stakeholders. This creates wider opportunities and incentives for greenwash behaviors. We propose a novel set of measures to capture greenwashing and we investigate the association between greenwashing and corporate governance features that traditionally mitigate agency problems. We show that board characteristics are variously associated with the apparent degree of corporate greenwashing. Firms with more independent directors tend to greenwash more, the presence of female board directors seems to have a positive impact on the degree of greenwashing, while the effect of board size on greenwashing remains ambiguous. Importantly, we find that greenwashing reduces firm value.

Mediating Effect of Green Human Resource Management (GHRM) and Organizational Agility (OA) On Firm Environmental Performance (FEP): By Applying Quantitative Research Approach

The current study seeks to investigate the influence of Environmentally Specific Transformational Leadership (ESTL) with the mediating effect of Green Human Resource Management (GHRM) and Organizational Agility (OA) On Firm Environmental Performance (FEP) by applying a quantitative research approach to collect and analyze the data and its results. A quantitative research design will be used, and a survey questionnaire comprised of 40 items from which 11 items for demographic questions and 29 items measuring the impact of Environmentally Specific Transformational Leadership, Organizational Agility Firm hypothesized Environmentally Specific Transformational Leadership has an impact on Firm Environmental Performance via Green Human Resource Management and Organizational Agility. The research framework is seen under the light of Resource Based View theory (RBV) and Transformational Leadership theory. The finding may be able to help organizations better understand the role of leaders in making efforts for environmental performance and better-equipping organizations with agility.

The role of social capital in price efficiency: International evidence

This study finds that firms with higher social capital and trust, as measured by firm environmental and social (E&S) performance, demonstrate better stock price efficiency. The result in a sample of 45 countries remains robust to alternative approaches addressing the endogeneity concerns. This relation is mainly derived from a firm's E&S engagements related to third parties and the whole of society, which regulate the firm's information environment after accounting for other influences. The positive role of E&S performance is further shaped by the firm's associated macro-level trust and social capital, as proxied by the market's cultural and institutional factors.

Does green innovation mediate corporate social responsibility and environmental performance? Empirical evidence from emerging markets

PurposeThis paper examines the mediation role of green innovation in the relationship between corporate social responsibility and environmental performance of manufacturing firms in Ghana.Design/methodology/approachThe paper chose African emerging markets and surveyed managers from manufacturing firms. With 301 questionnaires qualified for this study’s final analyses, the authors adopt the multiple regression with mediation models to estimates the nexus among study variables.FindingsResults evidence that both corporate social responsibility and green innovation has a positive and significant impact on environmental performance. Interestingly, the authors find that corporate social responsibility significantly improves environmental performance through green innovation indicating that firms could essentially build their dynamic resource and innovation capabilities in sustainability leading to enhanced environmental performance.Research limitations/implicationsThis paper develops a dynamic resource-based view of firm environmental performance illustrating how firms use resources to build strategic capabilities for competitive advantage, which leads to improved environmental performance. The paper highlights the mediation role of green innovation on corporate social responsibility and environmental performance relationships.Practical implicationsThis study's results provide significant insights to owners and managers of manufacturing companies to integrate corporate social responsibility and green innovation to ensure environmental performance and sustainability. Furthermore, policy makers should encourage green innovation when design sustainable development systems in the manufacturing industry.Originality/valueThe paper provides a valuable model showing how green innovation mediates corporate social responsibility to improve environmental performance and build competitive advantages considering both small, medium, and large manufacturing enterprises in emerging countries.

Compliance with government and firm's own policy, reverse logistics practices and firm environmental performance

PurposeThis study examines how compliance with government and firm's own policy and reverse logistics practices relate with firm environmental performance.Design/methodology/approachThis study draws on insights from stakeholder theory, and follows a two-phase research approach. The first phase utilized an extended literature review that seeks to provide a qualitative and comprehensive understanding of the research problem. The 2001–2023 data was collected from the Web of Science and Scopus databases, complemented with Google Scholar. The second phase involved an empirical study—adopting a quantitative cross-sectional survey design with a self-administered questionnaire to validate the theoretical conceptualizations deriving from the literature review. The empirical data were collected from 203 food and beverages manufacturing firms in Uganda and analysed using the partial least squares structural equation modelling (PLS-SEM) approach.FindingsThe study findings suggest that compliance with government policy positively influences firm environmental performance, both directly, and indirectly through fostering reverse logistics practices, and that the relationship between compliance with government policy and reverse logistics practices is contingent upon compliance with the focal firm's own policy.Research limitations/implicationsThe study findings will enhance the theoretical and conceptual development of the ideas that underpin stakeholder theory and applications. The Ugandan government will come up with better mechanisms for enforcing compliance with policy regulating the application of reverse logistics practices. In addition, the study advances the use of multi-method approaches in investigating interesting research aspects requiring in-depth examination. However, considering the fact that the empirical study was conducted in a single country context, and focused on firms more or less from the same sub-sector, the findings of the study might not be generalizable globally.Practical implicationsThis study provides useful insights to logistics and supply chain managers involved in reverse logistics activities in food and beverages manufacturing firms. These managers can know how to leverage reverse logistics practices to enhance environmental performance of firms amidst environmental policies in the industry where they operate.Originality/valueThis study contributes to the built body of knowledge in operations, logistics and supply chain management literature; understanding about reverse logistics practices as a mechanism through which compliance with government policy influences environmental performance of firms. The interaction between compliance with government policy and compliance with firm policy is essential in explaining the performance effects of reverse logistics practices. In addition, the study advances the use of multi-method approaches in investigating interesting research aspects requiring in-depth examination. Complementing extended literature review with and empirical research to investigate reverse logistics practices influences on firm environmental performance, and incorporating the role of policy in explaining this relationship should make considerable contribution. Besides, the study highlights important areas for future research.

Green supplier selection and environmental performance of firms in the Chinese manufacturing industry: the roles of behavior and outcome controls

PurposeGreen supplier selection (GSS) is acknowledged as important governance in green supply chain management (GSCM). However, this paper argues that GSS is not a stand-alone GSCM governance mode that determines manufacturers' environmental performance but rather one that needs to be aligned with contractual governance, particularly contractual control and adaptation, to promote environmental performance effects. This paper adopts GSS as ex ante governance and introduces behavior and outcome controls as ex post contractual control and adaptation, respectively. Thus, this paper addresses how GSS affects environmental performance directly and indirectly through behavior and outcome controls within transaction cost economics (TCE) theory.Design/methodology/approachThis research model was tested on 300 Chinese manufacturing firms, and multiple regression analysis was used to validate our hypotheses.FindingsA direct relationship was observed between GSS and environmental performance. This direct relationship is positively mediated by behavior and outcome controls.Originality/valueThis paper develops and elucidates an integrative green supply chain process proceeding from the implementation of ex ante GSS and ex post contractual governance to the realization of environmental performance. Furthermore, this paper considers two different forms of contractual governance, specifically contractual control and adaptation, and explains how they can be implemented using behavior and outcome controls from the perspective of TCE theory.