A study of the relationships among environmental performance, environmental disclosure, and financial performance
Abstract
Purpose
The purpose of this paper is to study the relationships among environmental performance (EP), environmental disclosure (ED), and financial performance (FP) (three corporate constructs) using data from Newsweek’s green rankings.
Design/methodology/approach
Previous studies document mixed results about the relations among the three constructs. A firm’s overall management strategy may affect the three constructs simultaneously; therefore, the interrelationships among EP, ED, and FP were jointly examined. A simultaneous equations approach was used to test the hypothesis.
Findings
The three-stage least square (3SLS) estimation results show a negative relationship between EP and FP and a positive relationship between EP and ED, suggesting that financially successful firms are less likely good environmental performers but green firms are more likely to disclose their EP.
Research limitations/implications
Since the sample firms examined in this study are US large-size companies, the results found in this paper may not apply to small- and/or medium-size firms or to companies in other countries.
Practical implications
Three corporate constructs are jointly correlated with each one. A firm’s overall strategic plan on environmental engagement is likely reflected in how it engages in each of the constructs that affect costs and benefits. Sustainable efforts, in short term, may put firms at risk. Companies may need to take a long-term perspective when cutting costs is curtailed.
Originality/value
The research contributes to the ED and EP literature by using a 3SLS simultaneous equation method and analyzing a more recent and comprehensive multi-industry data. By controlling industry effect, the research investigates the interrelationships among three corporate constructs and finds interesting results. An interpretation and discussion are provided.
Keywords
Acknowledgements
The authors gratefully acknowledge the insightful comments from two anonymous reviewers. The authors also benefited greatly from comments and suggestions from participants at the 2013 AAA Annual Meeting and from participants and discussant at the 2015 AAA Midwest Region Meeting. The authors sincerely appreciate the invaluable comments and suggestions from Editor Haiyan Zhou and other editors at the Asian Review of Accounting 2016 International Accounting Symposium.
Citation
Lu, L.W. and Taylor, M.E. (2018), "A study of the relationships among environmental performance, environmental disclosure, and financial performance", Asian Review of Accounting, Vol. 26 No. 1, pp. 107-130. https://doi.org/10.1108/ARA-01-2016-0010
Publisher
:Emerald Publishing Limited
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