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Unraveling the complex relationship between environmental and financial performance ─── A multilevel longitudinal analysis

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  • Liu, Zuoming

Abstract

Many business managers start to adopt environmental-friendly activities due to pressures and concerns regarding the potential adverse environmental impacts from their regular activities. However, there is no consensus regarding whether better environmental performance can lead to superior financial performance. Academic research also shows mixed or even contradictory results, possibly due to various limitations and problems. This study builds a multilevel framework to study the complicated relationship between environmental performance and financial return and synthesize those non-consensus results in many previous studies. An overall positive relationship is found between environmental and financial performance with variations across companies and industries due to the company- and industry-level heterogeneities. A negative relationship is also identified for some firms in some industry sectors. Moreover, the bi-directional causal relationship between environmental and financial performance also implies that it is necessary for companies to have sufficient financial resources in order to implement proactive environmental strategies and initiatives. The findings in this study make contributions to the literature, provide guidelines for managers and investors, and give implications for policymakers.

Suggested Citation

  • Liu, Zuoming, 2020. "Unraveling the complex relationship between environmental and financial performance ─── A multilevel longitudinal analysis," International Journal of Production Economics, Elsevier, vol. 219(C), pages 328-340.
  • Handle: RePEc:eee:proeco:v:219:y:2020:i:c:p:328-340
    DOI: 10.1016/j.ijpe.2019.07.005
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