The Effects of Operational Efficiency and Environmental Risk on the Adoption of Environmental Management Practices

Given that prior research has provided inconsistent findings on the relationship between financial performance and the adoption of environmental management practices (EMPs), we aim to resolve the inconsistency by positing that the firm may consider different components of financial performance when...

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Bibliographic Details
Published inSustainability Vol. 15; no. 22; p. 15869
Main Authors Lee, Jiung, Chung, Hakjin, Cho, Na-Eun
Format Journal Article
LanguageEnglish
Published Basel MDPI AG 01.11.2023
Subjects
Chemical industry
Competitive advantage
Decision-making
Decomposition
Efficiency
Environmental management
Environmental protection
Environmental risk
Environmental sustainability
Financial statements
Herbicides
Management decisions
Pesticides industry
Profit margins
Return on assets
Stakeholders
Sustainability
Turnover
United States
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Summary:Given that prior research has provided inconsistent findings on the relationship between financial performance and the adoption of environmental management practices (EMPs), we aim to resolve the inconsistency by positing that the firm may consider different components of financial performance when making decisions. Specifically, we maintain that operational efficiency, measured based on net profit margin, is a key determinant of a firm’s decision to adopt EMPs. Additionally, we aim to examine environmental risk as one contingency that moderates the relationship between operational efficiency and EMP adoption. Employing a firm-fixed effect model to examine the effects of various measures of financial performance, including the net profit margin, return on asset (ROA), return on equity (ROE), and asset turnover, on the adoption rates of EMPs by firms, we find that firms with higher operational efficiency measured based on net profit margin are more inclined to adopt EMPs, while measures such as ROA, ROE, and asset turnover do not demonstrate any substantial effect. This study also finds that while environmental risk increases the possibility of adopting EMPs, it weakens the impact of operational efficiency on the adoption rates of EMPs.
ISSN:2071-1050
2071-1050
DOI:10.3390/su152215869