Abstract
Obtaining environmental certification (such as the ISO-14,001) has become a status symbol for adopting greener practices for the corporate sector in emerging economies. Such certification can help improve the global visibility of firms and is mandated in international trade. This paper attempts to examine the impact of such certifications on technical efficiency of firms belonging to the manufacturing sector in India. In analyzing the impact of ISO Certification on technical efficiency, this paper uses data from the CMIE Prowess from 2007 to 2012. In the first step, the paper estimates technical efficiency for the sample firms and then examines the determinants of inter-firm differences in technical efficiency using firm specific characteristics. The results of this study conclude that there are substantial inter-firm differences in technical efficiency and they are systematically different based on firm age, firm size, debt capital, MNE affiliation, and ISO certification. ISO certification, especially maintaining the standards associated with it, turned out to be an important factor in making the firms achieve higher technical efficiency. In addition, the results of this study also confirm that firms that are ISO certified and doing R&D are better off in technical efficiency as compared to others.
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Notes
According to the Porter hypothesis, strict environmental regulations can induce efficiency and encourage innovations that help improve commercial competitiveness. The hypothesis was formulated by Michael Porter in 1995. The hypothesis suggests that strict environmental regulation triggers the discovery and introduction of cleaner technologies and environmental improvements, the innovation effect, making production processes and products more efficient. The cost savings that can be achieved are sufficient to overcompensate for both the compliance costs directly attributed to new regulations and the innovation costs. In the first mover advantage, a company is able to exploit innovation by learning curve effects or patenting and attains a dominating competitive position compared to companies in countries where environmental regulations were enforced much later.
According to Jaffe et al. (2002), “A firm can innovate without ever inventing, if it identifies a previously existing technical idea that was never commercialized, and brings a product or process based on that idea to the market”.
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Acknowledgments
We are grateful to Prof. N. S. Siddharthan, Prof. Bino Paul and Prof. B. N. Goldar for their comments and suggestions during the Ninth Annual Conference of Knowledge Forum organized at NIAS Bangalore during October 27-29, 2014. Thanks are due, to the participants of the conference for the insightful discussions during the conference. We are also thankful to the anonymous reviewers for the comments and suggestions in the earlier draft of the paper.
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Sahu, S.K., Narayanan, K. Environmental Certification and Technical Efficiency: A Study of Manufacturing Firms in India. J Ind Compet Trade 16, 191–207 (2016). https://doi.org/10.1007/s10842-015-0213-9
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DOI: https://doi.org/10.1007/s10842-015-0213-9