- Research Journal of Business and Management
- Vol: 5 Issue: 3
- WHY IS THE FINANCIAL PERFORMANCE-ENVIRONMENTAL PERFORMANCE RELATIONSHIP DIFFICULT TO MEASURE?
WHY IS THE FINANCIAL PERFORMANCE-ENVIRONMENTAL PERFORMANCE RELATIONSHIP DIFFICULT TO MEASURE?
Authors : Kenneth J. Hatten, James P. Keeler, William L. James, Kyungho Kim
Pages : 212-221
View : 6 | Download : 4
Publication Date : 2018-09-30
Article Type : Research
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