Corporate environmental responsibility and financial performance: Does bidirectional causality work? Empirical evidence from the manufacturing industry
Purpose Over the past two decades, scholarly attention has focused mainly on a direct and
inverse relationship between corporate environmental responsibility (CER) and corporate
financial performance (CFP). This study aims to explore the bidirectional causality
hypothesis, as good environmental results can lead to good financial results, which makes it
possible to invest more resources in projects that improve environmental performance.
Design/methodology/approach The authors test the bidirectional causality between CER …
inverse relationship between corporate environmental responsibility (CER) and corporate
financial performance (CFP). This study aims to explore the bidirectional causality
hypothesis, as good environmental results can lead to good financial results, which makes it
possible to invest more resources in projects that improve environmental performance.
Design/methodology/approach The authors test the bidirectional causality between CER …
Purpose
Over the past two decades, scholarly attention has focused mainly on a direct and inverse relationship between corporate environmental responsibility (CER) and corporate financial performance (CFP). This study aims to explore the bidirectional causality hypothesis, as good environmental results can lead to good financial results, which makes it possible to invest more resources in projects that improve environmental performance.
Design/methodology/approach
The authors test the bidirectional causality between CER and CFP on a sample of listed Italian manufacturing firms over the 2005-2014 period. The authors use a fixed effect panel data regression and check the robustness of the results with alternative econometric techniques.
Findings
Although the findings do not support bidirectional hypothesis, they establish direction/causality from CFP to CER. As a result, environmental responsibility is a consequence of prior financial performance, which supports the slack resources hypothesis.
Research limitations/implications
Given that companies’ environmental commitment is dictated by economic evaluations or by assessing the availability of resources to invest, it seems that the spread of environmentally responsible behaviours might be supported by different external pressures.
Originality/value
The paper provides further insights on sustainability management literature by establishing a bidirectional relationship between firm performance and environmental responsibility.
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