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Financial outcomes of environmental risk and opportunity for US companies

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  • Natalia Semenova

    (Åbo Akademi University, Finland)

  • Lars G. Hassel
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    Abstract

    The study extends previous research on the relation between environmental and financial performance in two ways. First, we recognize that inherent environmental risk differs among industries. Increased levels of industry risk cause companies to have lower market values even if they are more profitable than companies in low risk industries. Second, we decompose the multi-dimensional environmental opportunity construct into dimensions of preparedness and performance. As an extension of previous research on the economic value of environmental performance, we show that the reputational benefits of environmental preparedness mainly increase market value, while environmental performance also can bring operational benefits to financial performance. In high risk or polluting industries, environmental management is costly and reduces the operating performance of companies. Copyright © 2008 John Wiley & Sons, Ltd and ERP Environment.

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    File URL: http://hdl.handle.net/10.1002/sd.365
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Sustainable Development.

    Volume (Year): 16 (2008)
    Issue (Month): 3 ()
    Pages: 195-212

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    Handle: RePEc:wly:sustdv:v:16:y:2008:i:3:p:195-212

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    Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-1719

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    1. Alessandri, Todd M. & Khan, Raihan H., 2006. "Market performance and deviance from industry norms: (Mis)alignment of organizational risk and industry risk," Journal of Business Research, Elsevier, vol. 59(10-11), pages 1105-1115, October.
    2. Andrew King & Michael Lenox, 2002. "Exploring the Locus of Profitable Pollution Reduction," Management Science, INFORMS, vol. 48(2), pages 289-299, February.
    3. Karpoff, Jonathan M & Lott, John R, Jr & Wehrly, Eric W, 2005. "The Reputational Penalties for Environmental Violations: Empirical Evidence," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 653-75, October.
    4. Shameek Konar & Mark A. Cohen, 2001. "Does The Market Value Environmental Performance?," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 281-289, May.
    5. Herremans, Irene M. & Akathaporn, Parporn & McInnes, Morris, 1993. "An investigation of corporate social responsibility reputation and economic performance," Accounting, Organizations and Society, Elsevier, vol. 18(7-8), pages 587-604.
    6. Noel Capon & John U. Farley & Scott Hoenig, 1990. "Determinants of Financial Performance: A Meta-Analysis," Management Science, INFORMS, vol. 36(10), pages 1143-1159, October.
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    Cited by:
    1. Kerstin Lopatta & Thomas Kaspereit, 2014. "The World Capital Markets’ Perception of Sustainability and the Impact of the Financial Crisis," Journal of Business Ethics, Springer, vol. 122(3), pages 475-500, July.
    2. Semenova, Natalia & Hassel, Lars & Nilsson, Henrik, 2009. "The Value Relevance of Environmental and Social Performance: Evidence from Swedish SIX 300 Companies," Sustainable Investment and Corporate Governance Working Papers 2009/4, Sustainable Investment Research Platform.

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