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The causality direction between environmental performance and financial performance in Australian mining companies - A panel data analysis

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  • Abban, Abdul Rashid
  • Hasan, Mohammad Zahid

Abstract

The relationship between the environmental and financial performance has received significant attention in recent decades; however, in general the findings remain inconclusive and inconsistent. Given the debate on the nature of the relationship, this study estimates the bi-directional causation between environmental and financial performance of the Australian mining industry. Considering several environmental initiatives by the mining companies and financial incentive from the Australian Government, the findings of the study will enable the mining companies and the Government to evaluate the efficacy of their environmental operations. The study applies the Granger causality test to measure the bi-directional causality and the VAR model to estimates the size of effect. Furthermore, this study applies the instrumental variable technique to address endogeneity issue in the econometric model. The causality test reveals that bi-directional causality holds between environmental and financial performance. After addressing endogeneity, the study also contends that improved environmental performance leads to better financial performance. The findings further suggest that the marginal cost of environmental initiatives is higher for more productive firms, and this leads to downwards bias in the panel least square estimation. We conclude that the financial stability of the mining companies is necessary to achieve a more significant amount of emissions reduction.

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  • Abban, Abdul Rashid & Hasan, Mohammad Zahid, 2021. "The causality direction between environmental performance and financial performance in Australian mining companies - A panel data analysis," Resources Policy, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:jrpoli:v:70:y:2021:i:c:s0301420720309259
    DOI: 10.1016/j.resourpol.2020.101894
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    Cited by:

    1. Adomako, Samuel & Tran, Mai Dong, 2022. "Sustainable environmental strategy, firm competitiveness, and financial performance: Evidence from the mining industry," Resources Policy, Elsevier, vol. 75(C).
    2. Ammar Ali Gull & Asif Saeed & Muhammad Tahir Suleman & Rizwan Mushtaq, 2022. "Revisiting the association between environmental performance and financial performance: Does the level of environmental orientation matter?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(5), pages 1647-1662, September.
    3. Madaleno, Mara & Dogan, Eyup & Taskin, Dilvin, 2022. "A step forward on sustainability: The nexus of environmental responsibility, green technology, clean energy and green finance," Energy Economics, Elsevier, vol. 109(C).
    4. Ullah, Sami & Luo, Rundong & Nadeem, Muhammad & Cifuentes-Faura, Javier, 2023. "Advancing sustainable growth and energy transition in the United States through the lens of green energy innovations, natural resources and environmental policy," Resources Policy, Elsevier, vol. 85(PA).
    5. Sun, Xiaojun & Lei, Yalin, 2021. "Research on financial early warning of mining listed companies based on BP neural network model," Resources Policy, Elsevier, vol. 73(C).
    6. Emese Tokarcikova & Alzbeta Kucharcikova & Patricia Janosova, 2022. "The Relationship between Environmental and Economic Aspects for Measuring the Sustainability of the Enterprise: A Case Study of Slovak Manufacturing Enterprises," IJERPH, MDPI, vol. 19(13), pages 1-13, June.

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