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Unraveling the effects of environmental outcomes and processes on financial performance: A non-linear approach

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  • Misani, Nicola
  • Pogutz, Stefano

Abstract

We examine the roles of the outcome and process dimensions of environmental performance in determining financial performance as measured by Tobin's q. Outcomes refer to the impacts of the firm on the natural environment, while processes are the firm's actions to reduce these outcomes. We focus on a specific outcome – carbon emissions – and suggest that it affects Tobin's q non-linearly. We find that firms achieve the highest financial performance when their carbon performance is neither low nor high, but intermediate. We also find that environmental processes moderate this relationship as they reinforce firms' financial performance through improved stakeholder management. This mixed picture suggests that firms do not generally internalize the costs of poor carbon performance, but those that stand out in both environmental outcomes and processes achieve net financial benefits. These findings are based on a sample of carbon-intensive firms that disclosed their greenhouse gas (GHG) emissions through the Carbon Disclosure Project from 2007 through 2013.

Suggested Citation

  • Misani, Nicola & Pogutz, Stefano, 2015. "Unraveling the effects of environmental outcomes and processes on financial performance: A non-linear approach," Ecological Economics, Elsevier, vol. 109(C), pages 150-160.
  • Handle: RePEc:eee:ecolec:v:109:y:2015:i:c:p:150-160
    DOI: 10.1016/j.ecolecon.2014.11.010
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    1. repec:eee:ecolec:v:142:y:2017:i:c:p:21-30 is not listed on IDEAS
    2. repec:ebl:ecbull:eb-17-00402 is not listed on IDEAS
    3. repec:gam:jsusta:v:9:y:2017:i:11:p:1957-:d:116623 is not listed on IDEAS
    4. Riccardo Leoncini & Alberto Marzucchi & Sandro Montresor & Francesco Rentocchini & Ugo Rizzo, 2016. "‘Better late than never’: a longitudinal quantile regression approach to the interplay between green technology and age for firm growth," SEEDS Working Papers 0616, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised May 2016.
    5. Emiko Inoue, 2016. "Environmental disclosure and innovation activity: Evidence from EU corporations," Discussion papers e-16-012, Graduate School of Economics , Kyoto University.

    More about this item

    Keywords

    GHG emissions; Climate change; Environmental management; Financial performance; Tobin's q;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

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