The Effect of Corporate Environmental Performance on Financial Outcomes – Profits, Revenues and Costs: Evidence from the Czech Transition Economy

Dietrich Earnhart and Lubomir Lizal

No 10-15, DRUID Working Papers from DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies

Abstract: This empirical study analyzes the effect of corporate environmental performance on financial performance in a transition economy. In particular, it assesses whether good environmental performance affects profits, and if so, in which direction. Then the study decomposes profits into revenues and costs in order to identify the channel(s) of any identified effect of environmental performance on profits. For example, as environmental performance improves, do revenues rise and costs fall so that profits increase? For this assessment, our study analyzes the links from environmental performance to revenues, costs, and profits using an unbalanced panel of Czech firms from the years 1996 to 1998. The empirical results indicate strongly and robustly that better environmental performance improves profitability by driving down costs more than it drives down revenues. The strong reduction in costs is consistent with the substantial regulatory scrutiny exerted by environmental agencies during the sample period in the forms of prevalent monitoring (i.e., inspections) and enforcement and escalating emission charge rates.

Keywords: Czech Republic; environmental protection; pollution; financial performance (search for similar items in EconPapers)
JEL-codes: D21 G39 Q53 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-env and nep-tra
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Citations: View citations in EconPapers (9)

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