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The Influence of Voluntary and Mandatory Environmental Performance on Financial Performance: An Empirical Study of Indonesian Firms

  • Kimitaka Nishitani

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Nurul Jannah

    (Ministry of the Environment, Indonesia)

  • Hardinsyah Ridwan

    (Faculty of Human Ecology, Bogor Agriculture University, Indonesia)

  • Shinji Kaneko

    (Graduate School for International Development and Cooperation, Hiroshima University, Japan)

This paper, using data derived from a questionnaire survey of Indonesian firms, analyzes not only whether a firm's environmental performance improves its financial performance, but also whether this relationship depends on the firm's stance on conducting environmental management voluntarily or mandatorily. The estimation results suggest that a reduction of greenhouse gas (GHG) emissions increases a firm's profit, because firms that conduct environmental management voluntarily are more likely to reduce GHG emissions. However, this is not the case for the reduction of pollution emissions, because firms that conduct environmental management mandatorily are more likely to reduce pollution emissions. These results imply that only firms conducting environmental management voluntarily can improve financial performance through better environmental performance in Indonesia.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2013-01.pdf
File Function: First version, 2013
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Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2013-01.

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Length: 23 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:kob:dpaper:dp2013-01
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  1. Wheeler, David, 2001. "Racing to the bottom : foreign investment and air pollution in developing countries," Policy Research Working Paper Series 2524, The World Bank.
  2. Khanna, Madhu, 2001. " Non-mandatory Approaches to Environmental Protection," Journal of Economic Surveys, Wiley Blackwell, vol. 15(3), pages 291-324, July.
  3. Iwata, Hiroki & Okada, Keisuke, 2011. "How does environmental performance affect financial performance? Evidence from Japanese manufacturing firms," Ecological Economics, Elsevier, vol. 70(9), pages 1691-1700, July.
  4. Lanoie, P. & Laurent-Lucchetti, L. & Johnstone, N. & Ambec, S., 2007. "Environmental policy, innovation and performance : new insights on the Porter hypothesis," Working Papers 200706, Grenoble Applied Economics Laboratory (GAEL).
  5. Khanna, Madhu & Quimio, Wilma Rose H. & Bojilova, Dora, 1998. "Toxics Release Information: A Policy Tool for Environmental Protection," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 243-266, November.
  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. Kimitaka Nishitani, 2011. "An Empirical Analysis of the Effects on Firms’ Economic Performance of Implementing Environmental Management Systems," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 48(4), pages 569-586, April.
  8. Adam B. Jaffe & Karen Palmer, 1996. "Environmental Regulation and Innovation: A Panel Data Study," NBER Working Papers 5545, National Bureau of Economic Research, Inc.
  9. Nishitani, Kimitaka, 2009. "An empirical study of the initial adoption of ISO 14001 in Japanese manufacturing firms," Ecological Economics, Elsevier, vol. 68(3), pages 669-679, January.
  10. Takashi Hatakeda & Katsuhiko Kokubu & Takehisa Kajiwara & Kimitaka Nishitani, 2012. "Factors Influencing Corporate Environmental Protection Activities for Greenhouse Gas Emission Reductions: The Relationship Between Environmental and Financial Performance," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 53(4), pages 455-481, December.
  11. Arimura, Toshi H. & Darnall, Nicole & Katayama, Hajime, 2011. "Is ISO 14001 a gateway to more advanced voluntary action? The case of green supply chain management," Journal of Environmental Economics and Management, Elsevier, vol. 61(2), pages 170-182, March.
  12. Andrew King & Michael Lenox, 2002. "Exploring the Locus of Profitable Pollution Reduction," Management Science, INFORMS, vol. 48(2), pages 289-299, February.
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