The relationship between lean manufacturing, environmental damage, and firm performance

Original Paper
  • 33 Downloads

Abstract

Prior research has found mixed results of leanness, with a counter idea being that slack allows flexibility to improve firm financial performance. We first seek to confirm empirically that leanness in manufacturing does in fact contribute to both lower environmental damage and to improve firm financial performance. With increased awareness of global environmental issues, we incorporate environmental damage measures from Trucost to assess how they may affect firm performance and are affected by leanness. The measures of leanness are calculated based on publically available financial data from Compustat. Based on a final sample of 406 manufacturing firms representing 3594 firm-year observations from 2002 to 2013, the proposed relationships of leanness to firm outcomes and environmental damaged are investigated. A key finding of this study is that a firm should aim its lean efforts to reducing environmental damage, which in turn has more of an effect on improving financial performance than other lean initiatives.

Keywords

Lean manufacturing Environmental performance Financial performance Mediation 

JEL Classification

M14 O14 M10 

References

  1. Baron, R.M., Kenny, D.A.: The moderator–mediator variable distinction in social psychological research: conceptual, strategic, and statistical considerations. J. Pers. Soc. Psychol. 51(6), 1173 (1986)CrossRefGoogle Scholar
  2. Blomgren, A.: Does corporate social responsibility influence profit margins? a case study of executive perceptions. Corp. Soc. Responsib. Environ. Manag. 18(5), 263–274 (2011)CrossRefGoogle Scholar
  3. Capkun, V., Hameri, A.P., Weiss, L.A.: On the relationship between inventory and financial performance in manufacturing companies. Int. J. Oper. Prod. Manag. 29(8), 789–806 (2009)CrossRefGoogle Scholar
  4. Chen, H., Frank, M.Z., Wu, O.Q.: US retail and wholesale inventory performance from 1981 to 2004. Manuf. Serv. Oper. Manag. 9(4), 430–456 (2007)CrossRefGoogle Scholar
  5. Christoffersen, S., Frampton, G.C., Granitz, E.: Environmental sustainability’s impact on earnings. J. Bus. Econ. Res. 11(7), 325–334 (2013)Google Scholar
  6. Cohen, J., Cohen, P., West, S.G., Aiken, L.S.: Applied Multiple Correlation/Regression Analysis for the Behavioral Sciences, 3rd edn. Lawrence Erlbaum Associates, Mahwah (2003)Google Scholar
  7. Dowell, G., Hart, S., Yeung, B.: Do corporate global environmental standards create or destroy market value? Manag. Sci. 46(8), 1059–1074 (2000)CrossRefGoogle Scholar
  8. Eroglu, C., Hofer, C.: Lean, leaner, too lean? The inventory-performance link revisited. J. Oper. Manag. 29(4), 356–369 (2011)CrossRefGoogle Scholar
  9. Greene, W.H.: Econometric analysis, 6th edn. Prentice Hall, Upper Saddle River (2008)Google Scholar
  10. Hart, S.L., Ahuja, G.: Does it pay to be green? An empirical examination of the relationship between emission reduction and firm performance. Bus. Strategy Environ. 5(1), 30–37 (1996)CrossRefGoogle Scholar
  11. Hines, P., Rich, N.: The seven value stream mapping tools. Int. J. Oper. Prod. Manag. 17(1), 46–64 (1997)CrossRefGoogle Scholar
  12. King, A.A., Lenox, M.J.: Does it really pay to be green? An empirical study of firm environmental and financial performance: an empirical study of firm environmental and financial performance. J. Ind. Ecol. 5(1), 105–116 (2001a)CrossRefGoogle Scholar
  13. King, A.A., Lenox, M.J.: Lean and green? An empirical examination of the relationship between lean production and environmental performance. Prod. Oper. Manag. 10(3), 244–256 (2001b)CrossRefGoogle Scholar
  14. King, A.A., Lenox, M.J.: Exploring the locus of profitable pollution reduction. Manag. Sci. 48(2), 289–299 (2002)CrossRefGoogle Scholar
  15. Klassen, R.D., McLaughin, C.P.: The impact of environmental management on firm performance. Manag. Sci. 42(8), 1199–1214 (1996)CrossRefGoogle Scholar
  16. Kong, D., Liu, S., Dai, Y.: Environmental policy, company environment protection, and stock market performance: evidence from China. Corp. Soc. Responsib. Environ. Manag. 21(2), 100–112 (2014)CrossRefGoogle Scholar
  17. Kovach, J.J., Hora, M., Manikas, A., Patel, P.: Firm performance in dynamic environments: the role of operational slack and operational scope. J. Oper. Manag. 37, 1–12 (2015)CrossRefGoogle Scholar
  18. Kroes, J., Subramanian, R., Subramanyam, R.: Operational compliance levers, environmental performance, and firm performance under cap and trade regulation. Manuf. Serv. Oper. Manag. 14(2), 186–201 (2012)CrossRefGoogle Scholar
  19. Letchumanan, R., Kodama, F.: Reconciling the conflict between the pollution-haven hypothesis and an emerging trajectory of international technology transfer. Res. Policy 29(1), 59–79 (2000)CrossRefGoogle Scholar
  20. Levinson, A.: Technology, international trade, and pollution from US manufacturing. Am. Econ. Rev. 99(5), 2177–2192 (2009)CrossRefGoogle Scholar
  21. Maddala, G.S., Lahiri, K.: Introduction to econometrics, vol. 2. Macmillan, New York (1992)Google Scholar
  22. Martin, R., Muûls, M., de Preux, L.B., Wagner, U.J.: Anatomy of a paradox: management practices, organizational structure and energy efficiency. J. Environ. Econ. Manag. 63, 208–223 (2012)CrossRefGoogle Scholar
  23. Meng, X.H., Zeng, S.X., Shi, J.J., Qi, G.Y., Zhang, Z.B.: The relationship between corporate environmental performance and environmental disclosure: an empirical study in China. J. Environ. Manag. 145, 357–367 (2014)CrossRefGoogle Scholar
  24. Murguia, J.M., Lence, S.H.: Investors’ reaction to environmental performance: a global perspective of the Newsweek’s “Green Rankings”. Environ. Resour. Econ. 60, 583–605 (2015)CrossRefGoogle Scholar
  25. Osborne, J.: Notes on the use of data transformations. Pract. Assess. Res. Eval. 9(2005), 42–50 (2005)Google Scholar
  26. Porter, M., van der Linde, C.: Green and competitive. Harv. Bus. Rev. 73, 120–134 (1995)Google Scholar
  27. Rothenberg, S., Pil, F.K., Maxwell, J.: Lean, green, and the quest for superior environmental performance. Prod. Oper. Manag. 10(3), 228–243 (2001)CrossRefGoogle Scholar
  28. Shewchuk, J.P.: Worker allocation in lean U-shaped production lines. Int. J. Prod. Res. 46(13), 3485–3502 (2008)CrossRefGoogle Scholar
  29. Swamidass, P.M.: The effect of TPS on US manufacturing during 1981–1998: inventory increased or decreased as a function of plant performance. Int. J. Prod. Res. 45(16), 3763–3778 (2007)CrossRefGoogle Scholar
  30. Tebini, H., M’Zali, B., Lang, P., Perez-Gladish, B.: The economic impact of environmentally responsible practices. Corp. Soc. Responsib. Environ. Manag. 23(5), 333–344 (2015)CrossRefGoogle Scholar
  31. Thomas, S., Repetto, R., Dias, D.: Integrated environmental and financial performance metrics for investment analysis and portfolio management. Corp. Gov. Int. Rev. 15(3), 421–426 (2007)CrossRefGoogle Scholar
  32. Trucost: Global Environmental Impacts. Trucost, New York (2009)Google Scholar
  33. Walley, N., Whitehead, B.: It’s not easy being green. Harv. Bus. Rev. 1994, 46–52 (1994)Google Scholar
  34. Womack, J.P., Jones, D.T., Roos, D.: The machine that changed the world. Harper Perennial, New York (1991)Google Scholar
  35. Yang, M.G.M., Hong, P., Modi, S.B.: Impact of lean manufacturing and environmental management on business performance: an empirical study of manufacturing firms. Int. J. Prod. Econ. 129(2), 251–261 (2011)CrossRefGoogle Scholar
  36. Zhu, Q., Cordeiro, J., Sarkis, J.: Institutional pressures, dynamic capabilities and environmental management systems: investigating the ISO 9000 e Environmental management system implementation linkage. J. Environ. Manag. 114, 232–242 (2013)CrossRefGoogle Scholar

Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Management Department, College of BusinessUniversity of LouisvilleLouisvilleUSA
  2. 2.College of Business and Economics, Information Technology and Supply Chain Management DepartmentBoise State UniversityBoiseUSA

Personalised recommendations