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Does Better Environmental Performance Affect Revenues, Cost, or Both? Evidence From a Transition Economy

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  • Dietrich Earnhart

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  • Lubomir Lizal

Abstract

This study analyzes the effect of corporate environmental performance on financial performance in a transition economy. In particular, it assesses whether good environmental performance affects revenues, costs, or both, and if so, in which directions. As environmental performance improves, do revenues rise and costs fall so that profits unambiguously increase? Or vice versa? If both revenues and costs rise (or fall), does better environmental performance improve or undermine profitability? To answer these questions, 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 analytical results indicate strongly that better environmental performance improves profitability by driving down costs more than it drives down revenues, consistent with the substantial regulatory scrutiny exerted by environmental agencies and the primary pollution control approach implemented by firms during the sample period.

Suggested Citation

  • Dietrich Earnhart & Lubomir Lizal, 2007. "Does Better Environmental Performance Affect Revenues, Cost, or Both? Evidence From a Transition Economy," William Davidson Institute Working Papers Series wp856, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2007-856
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    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/57236/1/wp856.pdf
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    References listed on IDEAS

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    Cited by:

    1. Giulio Cainelli & Massimiliano Mazzanti & Roberto Zoboli, 2013. "Environmental performance, manufacturing sectors and firm growth: structural factors and dynamic relationships," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 15(4), pages 367-387, October.
    2. Davide Antonioli & Massimiliano Mazzanti, 2009. "Techno-organisational strategies, environmental innovations and economic performances. Micro-evidence from an SME-based industrial district," Journal of Innovation Economics, De Boeck Université, vol. 0(1), pages 145-168.
    3. Massimiliano Mazzanti & Giulio Cainelli & Roberto Zoboli, 2008. "The Relationship Between Environmental Efficiency and Manufacturing Firm’s Growth," Working Papers 2008.99, Fondazione Eni Enrico Mattei.
    4. Tomáš Brzobohatý & Petr Janský, 2010. "Impact of CO 2 Emissions Reductions on Firms’ Finance in an Emerging Economy: The Case of the Czech Republic," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 17(4), pages 725-736, December.
    5. McGrath, Karen, 2014. "Does Increased Investment in Responsible Properties Lead to Better Corporate Performance?," MPRA Paper 57767, University Library of Munich, Germany, revised 05 Aug 2014.
    6. repec:spr:envpol:v:20:y:2018:i:2:d:10.1007_s10018-017-0192-7 is not listed 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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