Impacts of Industrial Heterogeneity and Technical Innovation on the Relationship between Environmental Performance and Financial Performance

Ruiqian Li and Ramakrishnan Ramanathan
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Ruiqian Li: Accounting School, Harbin University of Commerce, Harbin 150028, China
Ramakrishnan Ramanathan: Business & Management Research Institute, University of Bedfordshire, Putteridge Bury Campus, Luton, Bedfordshire LU2 8LE, UK

Sustainability, 2018, vol. 10, issue 5, 1-25

Abstract: In this paper, we investigate the relationship between environmental performance (EP) and financial performance (FP) from the perspective of technical innovation in Chinese industrial sectors. We also consider industrial heterogeneity and take temporal variations of the link into account. We collect the required data from different Chinese statistical yearbooks from 2004 to 2015. We use an aggregated index of environmental pollutants as a proxy for EP and return on assets as a proxy for FP, and we employ research and development expenditure to capture technical innovation. The empirical results indicate that industrial heterogeneity exists and the EP–FP link varies in different industrial groups. There is no evidence that the EP–FP link becomes more positive and more significant over time. Furthermore, the mediation effect of technical innovation and environmental pressures can jointly affect the link. Finally, technical innovation partially mediates the EP–FP link but only in Chinese light-polluting sectors not in heavy-polluting sectors. The mediating role of technical innovation has a great impact on shaping the EP–FP link. When technical innovation partially mediates the focal link, apart from the indirect link, the direct EP–FP link is likely to be positive. If not, the direct EP–FP link is likely to be negative.

Keywords: environmental performance; financial performance; technical innovation; industrial heterogeneity; mediation (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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