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

  • Dietrich Earnhart

    ()

  • Lubomir Lizal

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.

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp856.pdf
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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp856.

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Length: pages
Date of creation: 01 Feb 2007
Date of revision:
Handle: RePEc:wdi:papers:2007-856
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  1. Bluffstone, Randall, 1999. "Are the costs of pollution abatement lower in Central and Eastern Europe? Evidence from Lithuania," Environment and Development Economics, Cambridge University Press, vol. 4(04), pages 449-470, October.
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  8. Konar, Shameek & Cohen, Mark A., 1997. "Information As Regulation: The Effect of Community Right to Know Laws on Toxic Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 109-124, January.
  9. Seema Arora & Timothy N. Cason, 1996. "Why Do Firms Volunteer to Exceed Environmental Regulations? Understanding Participation in EPA's 33/50 Program," Land Economics, University of Wisconsin Press, vol. 72(4), pages 413-432.
  10. Roman Frydman & Cheryl Gray & Marek Hessel & Andrzej Rapaczynski, 1999. "When Does Privatization Work? The Impact Of Private Ownership On Corporate Performance In The Transition Economies," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1153-1191, November.
  11. Lubomír Lízal & Jan Svejnar, 2001. "Financial Conditions and Investment during the Transition: Evidence from Czech Firms," William Davidson Institute Working Papers Series 399, William Davidson Institute at the University of Michigan.
  12. Dietrich Earnhart, 2004. "The Effects of Community Characteristics on Polluter Compliance Levels," Land Economics, University of Wisconsin Press, vol. 80(3), pages 408-432.
  13. J.C. Bosch & E. Woodrow Eckard & Insup Lee, 1998. "EPA enforcement, firm response strategies, and stockholder wealth: an empirical examination," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(3), pages 167-177.
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  15. Dodd, Peter & Warner, Jerold B., 1983. "On corporate governance : A study of proxy contests," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 401-438, April.
  16. 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.
  17. Greg Filbeck & Raymond Gorman, 2004. "The Relationship between the Environmental and Financial Performance of Public Utilities," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 29(2), pages 137-157, October.
  18. Arora Seema & Cason Timothy N., 1995. "An Experiment in Voluntary Environmental Regulation: Participation in EPA's 33/50 Program," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 271-286, May.
  19. Lanoie, Paul & Laplante, Benoit & Roy, Maite, 1998. "Can capital markets create incentives for pollution control?," Ecological Economics, Elsevier, vol. 26(1), pages 31-41, July.
  20. Hamilton James T., 1995. "Pollution as News: Media and Stock Market Reactions to the Toxics Release Inventory Data," Journal of Environmental Economics and Management, Elsevier, vol. 28(1), pages 98-113, January.
  21. Pohl, G. & Anderson, R.E. & Claessens, S. & Djankov, S., 1997. "Privatization and Restructuring in Central and Eastern Europe: Evidence and Policy Options," Papers 368, World Bank - Technical Papers.
  22. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
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  24. Shameek Konar & Mark A. Cohen, 2001. "Does The Market Value Environmental Performance?," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 281-289, May.
  25. Jan Svejnar & Evzen Kocenda, 2002. "The Effects of Ownership Forms and Concentration on Firm Performance after Large-Scale Privatization," William Davidson Institute Working Papers Series 471, William Davidson Institute at the University of Michigan.
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