The relationship between environmental performance and financial performance: evidence from an emerging East Asian economy

Linh-TX Nguyen ()
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Linh-TX Nguyen: The University of Danang, University of Economics

International Journal of Disclosure and Governance, 2023, vol. 20, issue 1, No 1, 14 pages

Abstract: Abstract This study investigates the relationship between environmental performance and financial performance in both linear and quadratic functions in an emerging East Asian market. Accounting-based and market-based measures are utilized to capture two different aspects of financial performance. We extend the existing literature by considering a multidimensional aggregate construct of environmental performance and finding empirical evidence of a U-shaped relationship between environmental performance and financial performance. Accordingly, an increase in environmental performance deteriorates financial performance in the beginning, but after its threshold has been reached, the effect reverses and environmental performance ultimately serves profitability and market value. Our findings would be of interest to firms, investors, and policymakers by emphasizing the role of environmental performance in the improvement of financial performance in the long term.

Keywords: East Asia; Environmental performance; Financial performance; Taiwan; U-shaped relationship (search for similar items in EconPapers)
JEL-codes: M14 M41 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1057/s41310-022-00152-6

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