Does environmental footprint influence the resilience of firms facing environmental penalties?

Abstract

This study aims to understand whether prior environmental footprint helps firms to be more resilient against penalties following environmental violations. While the allocation of resources to diminish the company's environmental footprint might be considered detrimental to its financial recovery, the natural resource‐based view argues that environmental capabilities may foster firm resilience when faced with the shocks of environmental penalties. We collected data from press releases using Factiva between 2006 and 2019 to constitute an original sample of 143 events concerning US‐listed firms subjected to fines for environmental misconduct initiated by the Environmental Protection Agency. Using survival analysis methodology, we empirically find that firms with lower environmental footprints prior to the penalty recover sooner from the financial shock, hence exhibiting higher capabilities of resilience. This finding is robust to different survival analysis models and time windows. Our empirical analysis expands the range of studies supporting environmental performance as a way for organizations to improve resilience in the face of disruptions, in providing clear evidence in the case of environmental fines.