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The Effect of Environmental Performance Investments on Financial Performance: Analysis of Croatian Companies

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  • Adriana Galant
  • Dajana Cvek

Abstract

More attention is being paid to companies' environmental performance these days. It includes the consideration of how a company's business operations affect the natural environment in which it operates. In order to improve its environmental performance, various investments are essential. However, one important question is how such environmental performance investments affect the company's financial performance. The theoretical background indicates that both positive and negative effects on financial performance are possible; however, previous results show that environmental performance has a predominantly positive effect on financial performance. Considering the importance of environmental performance, the aim of this research is to determine if there is a positive relationship between environmental performance investments and financial performance. Investments in new long-term assets are used as a proxy for environmental performance investments since newer long-term assets are considered to be more environmentally acceptable than the older ones, while financial performance is measured with the business result (net profit or loss). The data was analysed by using multivariate regression analysis. The sample included 150 Croatian large-sized companies. The results reveal that there is a positive relationship between environmental performance investments and financial performance. Therefore, such investments are of interest to both the environment and the company since they help to preserve the natural environment and, at the same time, improve the company's financial performance. Implications for Central European audience: The effect of environmental performance investments on financial performance has been tested on a sample comparing companies from Central European country, Croatia. Obtained results can be of interests also for audience from other Central European countries with similar characteristics as Croatia due to common historical features (transitional experience).

Suggested Citation

  • Adriana Galant & Dajana Cvek, 2021. "The Effect of Environmental Performance Investments on Financial Performance: Analysis of Croatian Companies," Central European Business Review, Prague University of Economics and Business, vol. 2021(5), pages 37-51.
    • Handle: RePEc:prg:jnlcbr:v:2021:y:2021:i:5:id:271:p:37-51
    DOI: 10.18267/j.cebr.271
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    More about this item

    Keywords

    environmental performance investments; financial performance; environmental accounting; Croatia;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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