The Relationship between Environmental Management and Economic Performance: A New Model with Accumulated Earnings Ratio

Ting Ting Chen, Tomonori Honda, Eiji Hosoda, Kohji Hayase

Faculty of Economics, Keio University, Tokyo, Japan.
Graduate School of Integrated Arts and Sciences, Hiroshima University, Higashi, Hiroshima, Japan.
Research Institute of Science for Safety and Sustainability, National Institute of Advanced Industrial Science and Technology, Tsukuba, Japan.

DOI: 10.4236/jhrss.2014.22006                

Abstract

We empirically investigate the relationship between environmental management and economic performance using such data as environmental rating, credit rating, and accumulated earnings ratio of companies listed in the manufacturing sector on the first section of the Tokyo Stock Exchange. We performed a path analysis using two types of structural equation modeling: Model A with a terminal economic performance path and Model B with a terminal environmental management path. As a result, we found that Model B has better goodness of fit in the path analysis than does Model A. This is because it is natural to place the economic performance path before the environment management path since companies pursue profits for stockholders. We also confirmed that in Model B, the path from the accumulated earnings rate to environmental management has a significantly negative coefficient. This suggests that two groups of enterprises exist: profit-oriented and environment-oriented companies. Since our results are based on Japanese companies, it is advisable to investigate further to generalize the results worldwide.

Keywords

Accumulated Earnings Ratio, Environment Management, Economic Performance, Company Size, Sustainable Management

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	Lanjouw, J.O. and Mody, A. (1996) Innovation and International Diffusion of Environmentally Responsive Technology. Research Policy, 25, 549-571. http://dx.doi.org/10.1016/0048-7333(95)00853-5
[2]	Porter, M.E. and van der Linde, C. (1995) Toward a New Conception of the Environment Competitiveness Relationship. Journal of Economic Perspectives, 9, 97-118. http://dx.doi.org/10.1257/jep.9.4.97
[3]	Jaffe, A.B. and Palmer, K. (1997) Environmental Regulation and Innovation: A Panel Data Study. The Review of Economics and Statistics, 79, 610-619. http://dx.doi.org/10.1162/003465397557196
[4]	Konar, S. and Cohen, M.A. (2001) Does the Market Value Environmental Performance? Review of Economics and Statistics, 83, 281-289. http://dx.doi.org/10.1162/00346530151143815
[5]	King, A. and Lenox, M. (2002) Exploring the Locus of Profitable Pollution Reduction. Management Science, 48, 289-299. http://dx.doi.org/10.1287/mnsc.48.2.289.258
[6]	Hibiki, A., Higashi, M. and Matsuda, A. (2003) Determinants of the Firm to Acquire ISO14001 Certificate and Market Valuation of the Certified Firm. Discussion Paper 03-06, Department of Social Engineering, Tokyo Institute of Technology, Tokyo.
[7]	Corderio, J.J. and Sarkis, J. (1997) Environmental Proactivism and Firm Performance: Evidence from Security Analyst Earnings Forecasts. Business Strategy and the Environment, 6, 104-114. http://dx.doi.org/10.1002/(SICI)1099-0836(199705)6:2<104::AID-BSE102>3.0.CO;2-T
[8]	Wagner, M., Phu, N.V., Azomahou, T. and Wehrmeyer, W. (2002) The Relationship between the Environmental and Economic Performance of Firms: An Empirical Analysis of the European Paper Industry. Corporate Social Responsibility and Environmental Management, 9, 133-146. http://dx.doi.org/10.1002/csr.22
[9]	Filbeck, G. and Gorman, R.F. (2004) The Relationship between the Environmental and Financial Performance of Public Utilities. Environmental and Resource Economics, 29, 137-157. http://dx.doi.org/10.1023/B:EARE.0000044602.86367.ff
[10]	Boons, F. and Wagner, M. (2009) Assessing the Relationship between Economic and Ecological Performance: Distinguishing System Levels and the Role of Innovation. Ecological Economics, 68, 1908-1914. http://dx.doi.org/10.1016/j.ecolecon.2009.02.012
[11]	Walley, N. and Whitehead, B. (1994) It’s Not Easy Being Green. Harvard Business Review, 72, 46-52.
[12]	Russo, M.V. and Fouts, P.A. (1997) A Resource-Based Perspective on Corporate Environmental Performance and Profitability. Academy of Management Journal, 40, 534-559. http://dx.doi.org/10.2307/257052
[13]	Managi, S. (2010) Economics of Environmental Strategy. Chuokeizai-sha Inc.
[14]	Kagata, K. (2006) An Empirical Study of the Relationship between Environmental Performance and Financial Performance. Journal of Policy Studies, 21, 121-142.
[15]	Cole, M.A., Elliott, R.J.R. and Shimamoto, K. (2006) Globalization, Firm-Level Characteristics and Environmental Management: A Study of Japan. Ecological Economics, 59, 312-323. http://dx.doi.org/10.1016/j.ecolecon.2005.10.019
[16]	Hongo, A. (2008) Does Environmental Management Increase Firm Value? Empirical Analysis of Firm Value Using Nikkei’s Environmental Management Survey. The Journal of Social Science, 64COE Special Edition, 257-268.
[17]	Takeda, F. and Tomozawa, T. (2008) A Change in Market Responses to the Environmental Management Ranking in Japan. Ecological Economics, 67, 465-472. http://dx.doi.org/10.1016/j.ecolecon.2007.12.027
[18]	Yamazawa, K. (2003) Practical Guide to the Rating and the Rating Industry. Toyo Keizai Inc.
[19]	Goto, M. (2011) A Review of the Porter Hypothesis and Empirical Study on Japanese Industries. Socio-Economic Research Center Rep, Y10014, 1-34.
[20]	Masaki, A. (2006) A Study on the Problems of CSR in Japan—Corporate Social Performance and Financial Performance. The Economic Journal of Takasaki City University of Economics, 48, 157-170.
[21]	Fujii, H., Yagi, M., Managi, S. and Kaneko, S. (2001) Relationship between Eco-Patent and Corporate Financial Performance in Japanese Manufacturing Sector. Environmental Science, 24, 114-122.
[22]	Nakamura, M., Takahashi, T. and Vertinsky, I. (2001) Why Japanese Firms Choose to Certify: A Study of Managerial Responses to Environmental Issues. Journal of Environmental Economics and Management, 42, 23-52. http://dx.doi.org/10.1006/jeem.2000.1148
[23]	Drucker, P.F. (1954) The Practice of Management. Harper & Row, New York.
[24]	Elsayed, K. and Paton, D. (2005) The Impact of Environmental Performance on Firm Performance: Static and Dynamic Panel Data Evidence. Structural Change and Economic Dynamics, 16, 395-412. http://dx.doi.org/10.1016/j.strueco.2004.04.004
[25]	Hamamoto, M. (2006) Environmental Regulation and the Productivity of Japanese Manufacturing Industries. Resource and Energy Economics, 28, 299-312. http://dx.doi.org/10.1016/j.reseneeco.2005.11.001
[26]	Chen, T.T., Wu, R., Honda, T. and Hayase, K. (2014) Proposal for a New Company Size Index and Its Use in Effects Analysis. Society of Environmental Science, 27, 73-83.
[27]	Nikkei Inc. (2010) Report on 13th Survey of Environment Oriented Management Index (In Japanese).
[28]	Nikkei Inc. (2011) Report on 14th Survey of Environment Oriented Management Index (In Japanese).
[29]	Nikkei Inc. (2012) Report on 15th Survey of Environment Oriented Management Index (In Japanese).
[30]	Nikkei Inc. (2013) Report on 16th Survey of Environment Oriented Management Index (In Japanese).
[31]	R & I Inc. (2010) Credit Ratings Data 2010 February. http://www.r-i.co.jp/jpn/cfp/data/index.html
[32]	R & I Inc. (2011) Credit Ratings Data 2011 March. http://www.r-i.co.jp/jpn/cfp/data/index.html
[33]	R & I Inc. (2012) Credit Ratings Data 2012 March. http://www.r-i.co.jp/jpn/cfp/data/index.html
[34]	R & I Inc. (2013) Credit Ratings Data 2013 March. http://www.r-i.co.jp/jpn/cfp/data/index.html
[35]	Toyo Keizai Inc. (2010-2013) Japan Company Handbook Spring 2010, 2011, 2012 and 2013 (In Japanese).
[36]	Hu, L. and Bentler, P.M. (1999) Cutoff Criteria for Fit Indexes in Covariance Structure Analysis: Conventional Criteria versus New Alternatives. Structural Equation Modeling, 6, 1-55. http://dx.doi.org/10.1080/10705519909540118
[37]	http://www.ricoh.co.jp/csr/index.html http://www.szj.jp