An empirical analysis of the effect of financial performance on environmental performance of companies in global supply chains

Autor: Henry Aigbedo 

Data publicação: 2021

The relationship between companies’ financial performance (FP) and their environmental performance (EP) has generated a lot of interest among practicing managers and researchers over the years. This is largely because it simultaneously addresses two – economic and environmental – aspects of the three tripods of the triple bottom line phenomenon. In spite of the fact that both directions of the EP-FP link are important, a vast majority of studies have focused on one direction: how EP affects FP. There is a dearth of research on the reverse link and it is thus the focus of our study. Using EP and other archival data for 468 companies representing 10 industry sectors and 32 countries, with hierarchical regression as the main procedure, we examine specifically how FP as measured by return on assets (ROA) and revenue growth (RG) affects EP. We also study how firm size moderates the effect of ROA and RG on EP as well as the effect of industry concentration on EP. We find that RG affects EP, this effect being comparatively stronger for larger firms. Among other things, we also find that industry to which the firms belong by far more explain EP than FP does. Our findings have important implications for practicing managers and also contribute to advancing research on the relationship between FP and EP. Specifically, for example, the results suggest that managers should pay more attention to EP for companies in the industry to which they belong, rather than EP for companies in general.

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