Abstract
Prior research suggests that Corporate Environmental Performance (CEP) enables businesses to build strong corporate image and reputation, thus leading to improved firm financial performance. However, studies relating to the relationship between CEP and firm risk are scarce. This research intends to bridge the gap in the literature by examining whether CEP helps firms to reduce their financial risk. Results of the Ordinary Least Squares regression with fixed effects provide strong evidence that environmental performance is negatively associated with firm volatility and firm downside risk. The results are robust after controlling for moderating effects such as financial, institutional and environmental management.
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Notes
Political economy refers to the social, political and economic framework within which business activities are produced (Hillman and Hitt 1999).
Based on a market-based measure, the change (or loss) in market capitalization (Lee and Garza-Gomez 2012).
It consists of $68.2 billion to British Petroleum, $23.8 billion to eight partners and $183.7 billion to other firms in the oil and gas industry. Big companies like BP could withstand the effect of this loss. Most firms do not have the same financial strength and market share like BP, and then it becomes more difficult to cope with unforeseen events.
USEtox characterisation factors are consensus based, include more chemicals and account for the exposure pathways: air, water and ground (Bosworth and Clemens 2011).
Australian PRTR keep record of 93 different chemicals for over 4000 facilities (NPI 2013).
Toxicity Risk Score = (Human Health Hazard + Environmental Hazard) X Exposure (Muhammad et al. 2014).
We are assuming that a company does not significantly alter its business orientation during the study period.
The prime focus of these studies are “Does it pays to be green?”.
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Muhammad, N., Scrimgeour, F., Reddy, K. et al. The Impact of Corporate Environmental Performance on Market Risk: The Australian Industry Case. J Bus Ethics 132, 347–362 (2015). https://doi.org/10.1007/s10551-014-2324-3
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DOI: https://doi.org/10.1007/s10551-014-2324-3