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Environmental management practices and firm financial performance: The moderating effect of industry pollution-related factors


  • Lucas, Marilyn T.
  • Noordewier, Thomas G.


Is the relationship between a firm׳s environmental management practices (EMPs) and its financial performance (FP) dependent on industry pollution-related ("context") characteristics? If so, how? Drawing upon Scott׳s (2004) "dualist" theory of organizations, we propose and test a model that examines the effect of EMPs on firm financial performance both within- and between-industry contexts. In essence, instead of asking "does it pay to be green?" we inquire "what are the circumstances under which it might pay to be green?" Data used to test the hypothesis that industry context matters to the EMP-FP relationship consist of 941 publicly-traded manufacturing U.S. firms, spanning 52 four-digit NAICS codes. The cross-sectional data set includes environmental ratings of firms assigned by Kinder, Lyndenberg, Domini Research and Analytics (KLD), firm-level financial data from Standard & Poor׳s COMPUSTAT database, and industry-level information from the U.S. Census Bureau and the Environmental Protection Agency. Industry "context" is operationalized using measures of industry dirtiness and industry proactiveness. To investigate the influence of both firm- and industry-level variables on firm-level financial performance, we specify a hierarchical (i.e., multilevel) model to test our hypothesis. Among the results, we find that within dirty and non-proactive industries there is a positive marginal effect on firm performance as a result of engaging in EMPs. Moreover, the effect on financial performance of implementing EMPs is greater in relatively dirty and non-proactive industry contexts than in relatively clean and proactive contexts.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:proeco:v:175:y:2016:i:c:p:24-34
    DOI: 10.1016/j.ijpe.2016.02.003

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    References listed on IDEAS

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    3. Heather Dixon-Fowler & Daniel Slater & Jonathan Johnson & Alan Ellstrand & Andrea Romi, 2013. "Beyond “Does it Pay to be Green?” A Meta-Analysis of Moderators of the CEP–CFP Relationship," Journal of Business Ethics, Springer, vol. 112(2), pages 353-366, January.
    4. Bulent Menguc & Seigyoung Auh & Lucie Ozanne, 2010. "The Interactive Effect of Internal and External Factors on a Proactive Environmental Strategy and its Influence on a Firm's Performance," Journal of Business Ethics, Springer, vol. 94(2), pages 279-298, June.
    5. Mark A. Youndt & ohan Subramaniam & Scott A. Snell, 2004. "Intellectual Capital Profiles: An Examination of Investments and Returns," Journal of Management Studies, Wiley Blackwell, vol. 41(2), pages 335-361, March.
    6. Sarkis, Joseph & Cordeiro, James J., 2001. "An empirical evaluation of environmental efficiencies and firm performance: Pollution prevention versus end-of-pipe practice," European Journal of Operational Research, Elsevier, vol. 135(1), pages 102-113, November.
    7. Robert D. Klassen & Curtis P. McLaughlin, 1996. "The Impact of Environmental Management on Firm Performance," Management Science, INFORMS, vol. 42(8), pages 1199-1214, August.
    8. 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.
    9. 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.
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    Cited by:

    1. repec:eee:proeco:v:193:y:2017:i:c:p:272-280 is not listed on IDEAS
    2. Lam, Hugo K.S. & Yeung, Andy C.L. & Cheng, T.C.E. & Humphreys, Paul K., 2016. "Corporate environmental initiatives in the Chinese context: Performance implications and contextual factors," International Journal of Production Economics, Elsevier, vol. 180(C), pages 48-56.
    3. repec:gam:jsusta:v:9:y:2017:i:9:p:1528-:d:110025 is not listed on IDEAS


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