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The Effect of Corporate Environmental Performance on Financial Outcomes – Profits, Revenues and Costs: Evidence from the Czech Transition Economy

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  • Dietrich Earnhart
  • Ludomir Lizal

Abstract

This empirical study analyzes the effect of corporate environmental performance on financial performance in a transition economy. In particular, it assesses whether good environmental performance affects profits, and if so, in which direction. Then the study decomposes profits into revenues and costs in order to identify the channel(s) of any identified effect of environmental performance on profits. For example, as environmental performance improves, do revenues rise and costs fall so that profits increase? For this assessment, our study analyzes the links from environmental performance to revenues, costs, and profits using an unbalanced panel of Czech firms from the years 1996 to 1998. The empirical results indicate strongly and robustly that better environmental performance improves profitability by driving down costs more than it drives down revenues. The strong reduction in costs is consistent with the substantial regulatory scrutiny exerted by environmental agencies during the sample period in the forms of prevalent monitoring (i.e., inspections) and enforcement and escalating emission charge rates.

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Bibliographic Info

Paper provided by DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies in its series DRUID Working Papers with number 10-15.

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Date of creation: 2010
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Handle: RePEc:aal:abbswp:10-15

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Web page: http://www.druid.dk/

Related research

Keywords: Czech Republic; environmental protection; pollution; financial performance;

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