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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.

Suggested Citation

  • Dietrich Earnhart & Ludomir Lizal, 2010. "The Effect of Corporate Environmental Performance on Financial Outcomes – Profits, Revenues and Costs: Evidence from the Czech Transition Economy," DRUID Working Papers 10-15, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  • Handle: RePEc:aal:abbswp:10-15
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    References listed on IDEAS

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    1. Stijns, Jean-Philippe C., 2005. "Natural resource abundance and economic growth revisited," Resources Policy, Elsevier, pages 107-130.
    2. Wright, Gavin, 1990. "The Origins of American Industrial Success, 1879-1940," American Economic Review, American Economic Association, vol. 80(4), pages 651-668, September.
    3. Pessoa, Argentino, 2008. "Natural resources and institutions: the “natural resources curse” revisited," MPRA Paper 8640, University Library of Munich, Germany.
    4. Michiel Van Dijk & Martin Bell, 2007. "Rapid Growth with Limited Learning: Industrial Policy and Indonesia's Pulp and Paper Industry," Oxford Development Studies, Taylor & Francis Journals, vol. 35(2), pages 149-169.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Czech Republic; environmental protection; pollution; financial performance;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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