A causal analysis of environmental and financial performance: Differences between brown and green firms
A causal analysis of environmental and financial performance: Differences between brown and green firms
This study investigates the two-way relationship between corporate environmental performance (EP) and corporate financial performance (FP). The relationship between EP and FP remains ambiguous after decades of study. To contribute to the ongoing debate, we estimate a system of dynamic equations simultaneously by deploying structural equation modeling (SEM). The study employs annual data on all constituents of the S&P 500 index from 2011 to 2020 retrieved from Bloomberg and Refinitiv. In contrast to most literature, this study conclusively finds that FP affects EP only for a subset of firms (brown firms) while the effect of EP on FP differs across model specifications, estimation methods and measures of FP and EP, rendering the effect inconclusive. Further, the findings reveal that environmental expenditures entirely moderate the effect of FP on EP. The study concludes that FP boosts EP in brown firms only when environmental expenses are incurred.
Environmental disclosure score, Environmental pillar score, Return on assets, Simultaneous equation modeling
Vashisht, Rupali
9a642de2-5cf5-488d-a32f-34a2686abddf
Calvo-Pardo, Hector
07a586f0-48ec-4049-932e-fb9fc575f59f
Olmo, Jose
706f68c8-f991-4959-8245-6657a591056e
27 December 2024
Vashisht, Rupali
9a642de2-5cf5-488d-a32f-34a2686abddf
Calvo-Pardo, Hector
07a586f0-48ec-4049-932e-fb9fc575f59f
Olmo, Jose
706f68c8-f991-4959-8245-6657a591056e
Vashisht, Rupali, Calvo-Pardo, Hector and Olmo, Jose
(2024)
A causal analysis of environmental and financial performance: Differences between brown and green firms.
Economic Modelling, 144, [106949].
(doi:10.1016/j.econmod.2024.106949).
Abstract
This study investigates the two-way relationship between corporate environmental performance (EP) and corporate financial performance (FP). The relationship between EP and FP remains ambiguous after decades of study. To contribute to the ongoing debate, we estimate a system of dynamic equations simultaneously by deploying structural equation modeling (SEM). The study employs annual data on all constituents of the S&P 500 index from 2011 to 2020 retrieved from Bloomberg and Refinitiv. In contrast to most literature, this study conclusively finds that FP affects EP only for a subset of firms (brown firms) while the effect of EP on FP differs across model specifications, estimation methods and measures of FP and EP, rendering the effect inconclusive. Further, the findings reveal that environmental expenditures entirely moderate the effect of FP on EP. The study concludes that FP boosts EP in brown firms only when environmental expenses are incurred.
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Paper_1_ECMOMOD_accepted_manuscript
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Accepted/In Press date: 26 November 2024
e-pub ahead of print date: 7 December 2024
Published date: 27 December 2024
Keywords:
Environmental disclosure score, Environmental pillar score, Return on assets, Simultaneous equation modeling
Identifiers
Local EPrints ID: 497331
URI: http://eprints.soton.ac.uk/id/eprint/497331
ISSN: 0264-9993
PURE UUID: 57260547-f294-4ccb-9219-8891bf1fe536
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Date deposited: 20 Jan 2025 17:40
Last modified: 21 Jan 2025 03:06
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