Does the Porter Hypothesis Explain Expected Future Financial Performance? The Effect of Clean Water Regulation on Chemical Manufacturing Firms

Rassier, Dylan G.; Earnhart, Dietrich

doi:10.1007/s10640-009-9318-0

Cited by 99 publications

(61 citation statements)

References 45 publications

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“…In addition to the studies focusing directly on the impact of environmental regulations on productivity and technical change, there are studies analysing the effects of environmental regulations on labour and capital productivity [6,38,42]; on investments and age of the capital stock [43,44]; and on industry profitability [7,30,45]. Thus, the pulp and paper industry is fairly well scrutinised with regard to the impact of environmental regulation on production, profitability, productivity, and market equilibria.…”

Section: Previous Researchmentioning

confidence: 99%

Effect of Environmental Regulation Stringency on the Pulp and Paper Industry

Brolund

Lundmark

2017

Sustainability

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Abstract:The article investigates whether environmental regulations have affected productivity development and technological change in the European pulp and paper industry. A dynamic panel data approach is selected for analyzing a sample consisting of the pulp and paper industries in eight European countries. Industry total factor productivity for the period 1993-2009 is used as the dependent variable; it is explained by the intensities of environmental regulations for various types of pollutants, as well as by a number of other independent variables. The econometric results indicate that the regulation of nitrogen oxides is associated with productivity improvements with a one-year lag, whereas regulations regarding sulphur dioxide and carbon dioxide have not had any statistically significant impact. In line with the a priori expectations, the price of pulp is connected to a negative effect, while lagged R&D expenditures have had corresponding positive impacts. However, since stationary tests are asymptotic and the data series are quite short, strong conclusions regarding the actual causal effect of environmental policy could not be drawn. The results could therefore not be viewed as a proof of the so-called strong Porter hypothesis postulating that stringent well-designed environmental regulations increase productivity growth compared to a no-policy scenario.

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Section: Previous Researchmentioning

confidence: 99%

Effect of Environmental Regulation Stringency on the Pulp and Paper Industry

Brolund

Lundmark

2017

Sustainability

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“…Another strand of literature looks at the competitiveness effects of regulation in terms of firms' financial situation. Empirical work by Rassier and Earnhart (2010), Konar and Cohen (2001) and many others reveal evidence that regulation lowers a firm's market value and consequently future financial performance. Evidence for this result also appears in Canõn-de-Francia et al (2007).…”

Section: Related Researchmentioning

confidence: 99%

Unmasking the Porter Hypothesis: Environmental Innovations and Firm-Profitability

Rexhäuser

Rammer

2011

SSRN Journal

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:http://ftp.zew.de/pub/zew-docs/dp/dp11036.pdf NON-TECHNICAL SUMMARYEnvironmental regulation. What economists usually associate with these words are barriers to competitiveness. The association of Porter (1991) and Porter and van der Linde (1995) is a different one. By relying on a few case studies, they argue that even if stringent regulations impose costs on affected firms, regulations can trigger innovations which finally overcompensate regulatory costs. This view has become known as the Porter hypothesis which postulates a so called "win-win" situation that is supposed to improve both environmental quality and firms' profitability.We attempt to test this hypothesis based on comprehensive data of firms from Germany. In contrast to previous empirical work, we distinguish innovations that directly reduce resource consumption (and thus externalities) of the innovating firm on the one hand, and innovations that only reduce environmental externalities without increasing resource efficiency on the other. For both types of environmental innovation we separate between regulation-induced and voluntary innovations. Compared to firms that did not introduce any type of environmental innovation, both regulation induced and voluntary innovations that improve resource efficiency increase profitability. This positive effect is larger for regulation driven innovation since they lead to an 1.4 percentage point increase in profitability (measured with return on sales) while voluntary innovations only increase profitability by 0.8 percentage points. However, innovation that reduces environmental externalities reduce firms profitability by 0.8 percentage points if they are regulation-induced whereas voluntary abatement investment of this type does not lead to significant profitability effects.We use data from the German Community Innovation Survey (CIS) in 2009 (the Mannheim Innovation Panel 2009) since it includes a set of questions on environmental innovation adoption and whether this is due to regulation. German CIS data are an appropriate data source since Germany is one of the most regulated countries in the world. Following Porter's (1991) hypothesis that environmental regulation can improve firms' competitiveness we distinguish regulation induced and voluntary environmental innovations. We find that innovations which reduce environmental externalities reduce firms' profits, as long as they are induced by regulations. H...

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“…By contrast, others report just the opposite, with a better financial performance being associated with a poorer environmental record [10]. Finally, a third group of researchers argues that no clear pattern emerges in the relationship between economic and environmental performance [11] [12].…”

mentioning

confidence: 99%

“…For example, Henri and Journeault [10] built indicators from firms' survey responses while Déjean and Martinez [13] and Jacobs et al [11] constructed them from firms' voluntary disclosures, the weakness being that these disclosure are typically made so as to influence stakeholders via biased, rather than reliable, information [14]. Wahba [8], on the other hand, considered compliance with ISO 14000 or ISO 14001 (environmental certificate) as a proxy for good environmental performance; however, obtaining these certificates does not necessarily reflect the firms' true environmental impact rather they serve only as an indication that they adhere to certain rules of eco-efficiency.…”

mentioning

confidence: 99%

Agriculture, Profitability and Climate Change: Can Accounting Help Identify Best Farming Practices? Empirical Case Study in Spain

Antonini¹,

Argilés‐Bosch²

2017

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We perform an empirical analysis on the benefits of, and the challenges faced by, sustainability accounting in measuring the effects of climate change for a sample of Spanish rice farms. We use farm yields, revenues and incomes as indicators of economic performance, and greenhouse gas emissions, and direct and indirect energy consumption as indicators of climate change effects. According to our data, farms with higher yields, revenues and income are responsible for a greater environmental impact, measured in total gigajoules of energy consumed and tons of carbon dioxide emitted, than farms with a lower economic performance. Results show that in our sample the achievement of higher yields is attributable to the greater use of chemical inputs and fossil fuels and not to innovative and sustainable farming practices. The results indicate that accounting for climate change effects is not only possible but also necessary to provide more accurate information on the overall costs and benefits of farming. Greater transparency in accounting information should serve to highlight which farming activities are better able to reduce climate change impacts.

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Does the Porter Hypothesis Explain Expected Future Financial Performance? The Effect of Clean Water Regulation on Chemical Manufacturing Firms

Abstract: Chemical industry, Firm performance, Porter hypothesis, Regulated industries, Regulation, L25, L51,

Cited by 99 publications

References 45 publications

Effect of Environmental Regulation Stringency on the Pulp and Paper Industry

Effect of Environmental Regulation Stringency on the Pulp and Paper Industry

Unmasking the Porter Hypothesis: Environmental Innovations and Firm-Profitability

Agriculture, Profitability and Climate Change: Can Accounting Help Identify Best Farming Practices? Empirical Case Study in Spain

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