Abstract
This paper analyzes the relationship between a firm’s greenhouse gas (GHG) emissions and its profitability in Japanese manufacturing. Defining the difference between the marginal revenue and cost of reducing GHG emissions as the “net benefit,” which is endogenously characterized by various factors, we estimate a switching regression model where the sign of the net benefit determines the relationship between GHG emissions and profitability. Our empirical analysis focuses on ISO 14001 adoption, market competition, uncertainty, financial flexibility, and share ownership structure as the factors, and indicates that firms with low firm-specific uncertainty, high financial flexibility, and a high proportion of large shareholders tend to have a nonnegative net benefit, so that the positive relationship between their GHG emissions and profitability is mitigated. On the other hand, although ISO 14001 adoption is generally considered to be an indicator of a firm’s stance on environmental proactiveness, it does not provide a sufficient incentive to reduce emissions. Factors such as uncertainty, financial flexibility, and share ownership structure are more important to GHG emission reductions.
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The authors would like to thank Yutaka Kato, Yuzo Honda, Tadanori Yosano, Kenji Takeuchi, Makiko Nakano, Chika Saka, Xu Peng, Wataru Tanaka, Kenji Miyazaki, Iichiro Uesugi, Yoshiro Tsutsui, Yuji Izawa, Daisuke Ishikawa, Hirofumi Uchida, Yoshiaki Ogura, Shinpei Sano, Masahiko Shibamoto, Hirotsugu Kitada, workshop participants at Kobe University, Hosei University and Osaka University, two anonymous referees, and co-editor Michael Rauscher for many valuable suggestions and comments on an earlier version of this paper. The usual disclaimer applies. This work is supported by a Grant-in-Aid for Scientific Research (A) 21243031 (to KK) from the Ministry of Education, Culture, Sports, Science and Technology, Japan, and the Environmental Research and Technology Development Fund (E-1106) from the Ministry of the Environment, Japan.
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Hatakeda, T., Kokubu, K., Kajiwara, T. et al. Factors Influencing Corporate Environmental Protection Activities for Greenhouse Gas Emission Reductions: The Relationship Between Environmental and Financial Performance. Environ Resource Econ 53, 455–481 (2012). https://doi.org/10.1007/s10640-012-9571-5
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DOI: https://doi.org/10.1007/s10640-012-9571-5