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Environmental corporate social responsibility and financial performance: Disentangling direct and indirect effects

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  • Lioui, Abraham
  • Sharma, Zenu

Abstract

This paper assesses the impact of environmental corporate social responsibility (ECSR) on Corporate Financial Performance (CFP) measured by ROA and Tobin's Q. We show that the relationship between firms' return on assets (ROA) and ECSR, strengths and concerns, is negative and statistically significant. We also show that firms' Tobin Q and ECSR, strengths and concerns, are negatively correlated in a statistically significant way. However, accounting for the interaction between firms' environmental efforts and R&D yields a different perspective: while the direct impact of ECSR on CFP is still negative, the interaction of ECSR and R&D has a positive and significant impact on it. ECSR strengths and concerns harm CFP since they are perceived as a potential cost. However, this CSR activity fosters R & D efforts of firms which generates additional value (indirect effect).

Suggested Citation

  • Lioui, Abraham & Sharma, Zenu, 2012. "Environmental corporate social responsibility and financial performance: Disentangling direct and indirect effects," Ecological Economics, Elsevier, vol. 78(C), pages 100-111.
  • Handle: RePEc:eee:ecolec:v:78:y:2012:i:c:p:100-111
    DOI: 10.1016/j.ecolecon.2012.04.004
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    References listed on IDEAS

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    Cited by:

    1. Constantin Zopounidis & Michael Doumpos, 2013. "Multicriteria decision systems for financial problems," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 21(2), pages 241-261, July.
    2. Marie Connolly & Jérôme Dupras & Charles Séguin, 2016. "An economic perspective on rock concerts and climate change: Should carbon offsets compensating emissions be included in the ticket price?," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 40(1), pages 101-126, February.
    3. Huei-Wen Lin, 2016. "Do Negative Incidents and Corporate Social Responsibility Influence on Sponsors Stock Abnormal Returns?," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(3), pages 162-171, March.
    4. repec:kap:jbuset:v:147:y:2018:i:2:d:10.1007_s10551-015-2971-z is not listed on IDEAS
    5. repec:kap:jbuset:v:147:y:2018:i:2:d:10.1007_s10551-015-2938-0 is not listed on IDEAS
    6. repec:exl:25engi:v:27:y:2016:i:2:p:230-238 is not listed on IDEAS
    7. 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.
    8. Lucas, Marilyn T. & Noordewier, Thomas G., 2016. "Environmental management practices and firm financial performance: The moderating effect of industry pollution-related factors," International Journal of Production Economics, Elsevier, vol. 175(C), pages 24-34.
    9. repec:eee:ecolec:v:147:y:2018:i:c:p:218-229 is not listed on IDEAS
    10. Lin Wu & Nachiappan Subramanian & Muhammad D. Abdulrahman & Chang Liu & Kee-hung Lai & Kulwant S. Pawar, 2015. "The Impact of Integrated Practices of Lean, Green, and Social Management Systems on Firm Sustainability Performance—Evidence from Chinese Fashion Auto-Parts Suppliers," Sustainability, MDPI, Open Access Journal, vol. 7(4), pages 1-21, March.
    11. Reif, Christiane & Rexhäuser, Sascha, 2015. "Good enough! Are socially responsible companies the more successful environmental innovators?," ZEW Discussion Papers 15-018, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    12. repec:ebl:ecbull:eb-17-00402 is not listed on IDEAS
    13. Xiping Pan & Jinghua Sha & Hongliang Zhang & Wenlan Ke, 2014. "Relationship between Corporate Social Responsibility and Financial Performance in the Mineral Industry: Evidence from Chinese Mineral Firms," Sustainability, MDPI, Open Access Journal, vol. 6(7), pages 1-25, June.
    14. Gonenc, Halit & Scholtens, Bert, 2017. "Environmental and Financial Performance of Fossil Fuel Firms: A Closer Inspection of their Interaction," Ecological Economics, Elsevier, vol. 132(C), pages 307-328.
    15. Wang, Zhen & Subramanian, Nachiappan & Gunasekaran, Angappa & Abdulrahman, Muhammad D. & Liu, Chang, 2015. "Composite sustainable manufacturing practice and performance framework: Chinese auto-parts suppliers׳ perspective," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 219-233.
    16. repec:gam:jsusta:v:10:y:2018:i:5:p:1653-:d:148073 is not listed on IDEAS
    17. Nandy, Monomita & Lodh, Suman, 2012. "Do banks value the eco-friendliness of firms in their corporate lending decision? Some empirical evidence," International Review of Financial Analysis, Elsevier, vol. 25(C), pages 83-93.
    18. Trinks, Arjan & Ibikunle, Gbenga & Mulder, Machiel & Scholtens, Bert, 2017. "Greenhouse Gas Emissions Intensity and the Cost of Capital," Research Report 17017-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    19. Vintilă Georgeta & Nenu Elena Alexandra & Gherghina Ştefan Cristian, 2014. "Empirical Research Towards the Factors Influencing Corporate Financial Performance on the Bucharest Stock Exchange," Scientific Annals of Economics and Business, Sciendo, vol. 61(2), pages 219-233, December.

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    Keywords

    Corporate social responsibility; Tobin's Q; R&D;

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