The Financial Impact of FSC Certification in the United States: A Contingency Perspective

Abstract

This article focuses on an important and emergent standard for sustainable operations management: the Forest Stewardship Council (FSC) certification. Unlike similar certifications, its focus is on the entire upstream supply chain, reflecting the criticality of supply chain management to ensure sustainable products. We investigate the financial impact from FSC certification, offering valuable decision support for managers considering this certification. Taking a contingency perspective, we view a firm's supply chain position and its prior certification to the ISO 14001 standard as influencing the results. Drawing on signaling theory, we suggest that firms farther downstream in the supply chain realize significantly greater abnormal financial performance benefits than firms upstream in the supply chain. We further hypothesize that firms that were not ISO 14001 certified at the time of FSC certification realize significantly greater abnormal financial performance benefits than firms that did have the ISO 14001 certification. To test these hypotheses, we utilize financial data of all publicly traded firms in the United States that have obtained the FSC certification, and assess whether FSC certification leads to abnormal performance benefits considering the above contingencies. Data collected from the FSC Certificate Database and Compustat, employed in an event study, provide support for our hypotheses. Overall, our findings contribute to research on decision making in the context of sustainable operations management, and offer a plausible explanation for contradictory results in prior studies. We highlight the applicability of signaling theory to decision sciences research, and stress the need to consider contingencies in sustainability management research.

An Exploratory Assessment of FSC Chain of Custody Certification Benefits in Croatian Wood Industry

“…Results of this study suggest that FSC certifi cation is a precondition for competitiveness for Croatian wood industry companies. These fi ndings are consistent with the fi ndings of Narasimhan et al (2015), who confi rmed that upstream fi rms (companies at the beginning of supply chain), to which Croatian wood processing companies mostly belong, face coercive pressure from their business customers, and thus might choose to certify even if the benefi ts of certifi cation are not apparent. Although fi nancial benefi ts have not been proven significantly, the share of certifi ed products in total revenue is quite signifi cant.…”

“…Numerous studies have attempted to determine whether the certifi cation brings any benefi t and why certifi cate holders decided to implement chain of custody standards (Rickenbach and Overdevest, 2006;Vlosky et al, 2009;Bowers et al, 2012;Narasimhan et al, 2015 (Bowers et al, 2012). Price premium and market-based benefi ts from certifi cation were among the lowest ranked reasons (Rickenbach and Overdevest, 2006;Bowers et al, 2012).…”

“…The reasons CoC certifi cation has not been adopted among Malaysian furniture manufacturers are as follows: lack of price premiums, limited market potential and high costs (Ratnasingam, 2009). Narasimhan et al (2015) researched the impact of FSC certifi cation on company's performance depending on company's position in the supply chain. They confi rmed that the FSC certifi cation brings more market benefi ts (measured via sales growth) to downstream companies -those closer to the end customer.…”

Environmental Sustainability as a Source of Product Innovation: The Role of Governance Mechanisms in Manufacturing Firms

“…For instance, Green et al [6] showed that the implementation of green purchasing leads directly to improved economic performance of manufacturing firms, and Yang [7] found the reduced environmental impacts of a firm improve its competitiveness, in terms of service quality, productivity, and profits. More recently, Narasimhan et al [24] extended this view by exploring the role of the involved entities' supply chain positions. They found that companies closer to final consumers achieve greater financial benefits from Forest Stewardship Council certification, a widely-acknowledged international standard in the management and supply of sustainably produced timber.…”

A Graph Mining Approach to Identify Financial Reporting Patterns: An Empirical Examination of Industry Classifications

“…A common method for academic researchers and industry practitioners to control for industry effect is to rely on the industry classification to cluster firms with similar firm characteristics, such as business operations and products/services, into groups. The industry classification system therefore is important for information users in business as it provides a systematic way of identifying a group of similar companies (Kahle & Walkling, 1996;King & Slotegraaf, 2011;Narasimhan, Schoenherr, Jacobs, & Kim, 2015) and understanding the structure of economy (Christensen, 2013). It is well established that better industry classification contributes to better analysis results, compared with only considering firm size in the comparison (Kahle & Walkling, 1996).…”