Waste management, green initiatives, and financial distress in heavily regulated environmental contexts: evidence from the United Kingdom

Abstract

Purpose: This paper aims to empirically examine the effects of waste management (WM) practices on financial distress (FD) in a heavily regulated environmental context and investigates the moderating role of green initiatives (GINVs) on the WM−FD relationship. Design/methodology/approach: This study uses a sample of 1,667 firm years of UK-based companies from 2002 to 2021 and applies a panel regression analysis controlling for industry- and year-fixed effects. Data on WM, GINVs and governance are sourced from LSEG (formerly known as Refinitiv Asset4 ESG), whereas financial data are collected from WorldScope. The study also adopts alternative measures for FD and WM practices and uses a two-stage least squares analysis and the Heckman selection model as robustness checks. Findings: The findings reveal that FD levels decrease significantly when waste generation declines and waste recycling increases, suggesting that firms with better WM practices have lower FD levels. The results further show the moderating effect of GINVs on the link between waste generation and FD and suggest that increased GINVs are effective in reducing FD by mitigating waste levels. However, waste recycling and GINVs are found to have a substitutive effect on FD. The findings remain robust to the use of alternative measures and endogeneity issues. Originality/value: This work is among the first to investigate the WM-FD nexus and highlights the importance of effective WM practices in improving the financial sustainability of UK firms. The study also extends prior research by testing the moderating impact of GINVs and suggests that firms need to carefully balance their GINVs with waste recycling efforts to achieve optimal financial sustainability in a heavily regulated environmental context, such as the UK.

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