WHY IS THE FINANCIAL PERFORMANCE-ENVIRONMENTAL PERFORMANCE RELATIONSHIP DIFFICULT TO MEASURE?

Year 2018, Volume: 5 Issue: 3, 212 - 221, 30.09.2018

Kenneth J. Hatten James P. Keeler William L. James Kyungho Kim

Abstract

Purpose- There
appears to be no consensus as to the nature (positive or negative) or strength
of the relationship between financial performance (FP) and environmental
performance (EP). The literature seems to lean towards a positive relationship.
This paper offers an explanation of the mixed empirical results.

Methodology- Using
publicly available data a regression model with control variables was
developed. Serial correlation was present and the model was adjusted to account
for this. Quantile regression allowed a more direct test of our hypotheses by
allowing a direct estimate, with less bias, of how the EP-FP relation varies by
level of EP.

Findings- This
paper explores this relationship within three U.S. industries. The relationship
as modeled here is serially correlated and differs across industries and time.
Moreover, within three different single industries, quantile regression shows
that the relationship differs for high and low polluters. 

Conclusion- This
research indicates that the strength of the relationship between financial
performance and environmental performance is weak and varies considerably
depending on level of environmental performance and industry.  We conclude that the mixed results in the
literature of the EP – FP relation are due to failures to address serial
correlation bias and heterogeneity across industries and degree of
environmental performance.

Keywords

Financial performance, environmental performance, conflicting results, quantile regression, research methods

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