Going Green Inside and Out: Corporate Environmental Responsibility and Financial Performance under Regulatory Stringency

Jongjin Sohn, Jongseon Lee and Nami Kim
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Jongjin Sohn: FAIR Labs, 8F, Seoul Financial Center, 136, Sejong-daero, Jung-gu, Seoul 04520, Korea
Jongseon Lee: Korea Small Business Institute 77, Sindaebang 1ga-gil, Dongjak-gu, Seoul 07074, Korea
Nami Kim: Korea University Business School, 145, Anam-ro, Seongbuk-gu, Seoul 02841, Korea

Sustainability, 2020, vol. 12, issue 9, 1-23

Abstract: While researchers have long examined the relationship between corporate environmental responsibility (CER) and financial performance, the evidence remains inconclusive. Moreover, whether sustainable supply chain management plays a role in enhancing the financial performance of focal firms has yet to be fully investigated. As firms’ investment in CER often pays off in the long-term, applying multiple time horizons, short- to long-term considerations, is needed to determine the effects of CER. This study examined the role of CER in improving financial performance based on multiple time horizons. In particular, the effects of CER on financial performance were explored in terms of internal operations and supply chains. The moderating effects of regulatory stringency on the relationship between CER and a firm’s short- or long-term financial performance were also investigated. Firms’ CER was studied using carbon data from Trucost. Carbon footprint can be an appropriate proxy for CER, as it provides information on supply partners’ environmental concerns. A unique dataset of the carbon footprint of 714 North American firms in 19 industry sectors in 2003–2010 was used. The results indicated that firms benefit from CER not only in their internal operations but also in their supply chains in both the short and long-terms. The moderating effects of regulatory stringency were significant for CER only in terms of the supply chain but not for internal operations. In industries with a high level of regulatory stringency, the positive effects of CER on short-term financial performance in the supply chain become weaker, but the same effects on long-term financial performance become stronger. By investigating the effects of two distinct carbon footprint aspects on financial performance at different time horizons, this study sheds light on the importance of CER in firms’ internal operations and supply chains.

Keywords: corporate environmental responsibility; carbon footprint; sustainable supply chain; corporate financial performance; regulatory stringency (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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