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Journal of Cleaner Production 147 (2017) 340e351

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Journal of Cleaner Production

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Green practices and financial performance: A global outlook

Ivan Miroshnychenko*, Roberto Barontini, Francesco Testa

, 33, 56127, Pisa, Italy
Sant’Anna School of Advanced Studies, Piazza Martiri della Liberta

a r t i c l e i n f o a b s t r a c t

Article history: Companies around the world adopt green practices with the aim to reduce their environmental impacts
Received 9 September 2016 and improve their financial performance. The present study theorizes about and empirically examines
Received in revised form the impacts of corporate green practices on financial performance. Indexes of pollution prevention, green
10 January 2017
supply management, green product development and ISO 14001 adoption are obtained for each firm in a
Accepted 10 January 2017
panel of 3490 publicly-traded companies from 58 countries over 13 years. Results show that internal
Available online 12 January 2017
green practices (pollution prevention and green supply chain management) are the major environmental
drivers of financial performance, while external green practices (green product development) play a
Keywords:
Pollution prevention
secondary role in determining financial performance. The adoption of ISO 14001 appears to have a
Green supply chain management negative impact on financial performance. This study provides empirical support for policy-makers
Green product promoting environmental practices that may lead to sustainable economic growth.
ISO 14001 © 2017 Elsevier Ltd. All rights reserved.
Financial performance

1. Introduction value, while simultaneously contributing to a more sustainable

world.
In the last few decades, the majority of companies have adopted Scholars and practitioners have debated on the effectiveness of
new environmental solutions driven by search for external legiti- environmental actions and collaborations (Dangelico and
macy (Testa et al., 2015a) or to obtain competitive success with the Pontrandolfo, 2015). Many studies have analyzed whether envi-
protection of natural resources (Haden et al., 2009). The increasing ronmental practices are able to generate a win-win situation,
awareness of citizens on environmental degradation pushed up the where a reduction of the environmental footprint determines a cost
demand of green products from consumers (Leonidou et al., 2013). reduction or an increase of performance (Jabbour et al., 2012).
Producers can reach customers that are willing to pay the extra However, even if most of the papers empirically support this rela-
costs associated with production of environmentally-friendly green tionship for green supply management (GSCM) and green product
products (Tsai et al., 2012), while environmental practices can in- development (GPD) practices (Golicic and Smith, 2013), the results
crease efficiency and simultaneously reduce cost (Porter and van are controversial for pollution prevention (PP) and environmental
der Linde, 1995). An increase of eco-efficiency can provide a bet- management system (EMS) standards practices (Earnhart and Lizal,
ter access to new markets, the possibility to differentiate products 2007).
or to sell innovative technology (Dangelico et al., 2013). A recent meta-analytical review of 149 studies from Endrikat
Pollution is generally associated with the waste of resources, et al. (2014) on the association between corporate environmental
lost energy and raw materials not fully utilized (Porter and van der performance (CEP) and corporate financial performance (CFP) re-
Linde, 1995). Pollution prevention and clean technology, as inter- veals a positive relationship between CEP and CFP, confirming
nal organizational practices, can help to minimize cost and to earlier research. However, they argue that accounting for both in-
develop sustainable skills for the future, while external organiza- ternal and external measures of CEP and market- and accounting-
tional practices (product stewardship and sustainability vision) based measures of CFP can yield more detailed insights about the
can help to integrate stakeholder views into business operations CEP-CFP nexus, due to the multidimensional nature of both con-
and to formulate future business trajectories (Hart and Milstein, structs. The multidimensionality of CEP derives from an amplitude
2003). Taken together, these practices can drive shareholder of practices which contribute to the overall environmental perfor-
mance and embrace other actors along the supply chain and the
entire life cycle of a product (Testa et al., 2016). On the other side,
* Corresponding author. the multidimensionality of CFP includes a wide array of estimations
E-mail address: [Link]@[Link] (I. Miroshnychenko).

[Link]
0959-6526/© 2017 Elsevier Ltd. All rights reserved.
 I. Miroshnychenko et al. / Journal of Cleaner Production 147 (2017) 340e351 341

that may capture a firm’s ability to generate value in the short term performance “in relatively dirty and non-proactive industry con-
and company’s future growth prospects assessed by the external texts than in relatively clean and proactive contexts”. This suggests
stakeholders (Opler and Titman, 1995). that PP practices do not provide any significant financial gain in
According to the sustainable-value framework of Hart and non-polluting industries or in industries with low levels of pollu-
Milstein (2003), the purpose of a firm is to create sustainable tion. Firm operating in industry where most of the players are
value e “shareholder wealth that simultaneously drives us toward already environmentally-friendly cannot obtain a first-mover
a more sustainable world” (p. 65) e by adoption of internal advantage or profitable market differentiation via implementa-
(pollution prevention and clean technology) and external (product tion of green practices.
stewardship and sustainability vision) green practices. In this study, Other studies focused on specific national contexts. Nishitani
the impacts of corporate green practices on CFP are examined et al. (2011) show that Japanese firms that reduce pollution emis-
following the sustainable-value framework proposed by Hart and sions through the prevention approach achieve a competitive
Milstein (2003). Using a panel of 3490 publicly-traded firms from advantage through not only the increase in demand on their
58 countries for the period 2002e2014, this study explores products, but also through improvement in productivity. In the
whether internal and external green practices are able, individually context of transition economies, there is some evidence that better
and in combination, to improve CFP at company level. Corporate PP measures have not a significant impact on CFP in the Czech re-
green practices’ effects on both market-based and accounting- public (Earnhart and Lizal, 2007). It is likely that there is a weak
based measures of CFP are examined. consumers’ environmental sensitivity in transition economies and
The rest of the paper is organized as follows: the next section low willingness to pay extra for low-emission products, that might
provides an overview of the main findings emerging from the explain the absence of financial benefits associated with PP prac-
literature related to the hypotheses of the study. After that, the tices in this context.
dataset and the estimation methodology are described. Next, the Taking into account theoretical arguments and empirical find-
results are presented and discussed. The last section discusses the ings, it can be stated that PP practices can increase competitive
main contributions to the literature and avenues for future advantage by lowering costs and risks, and allowing a firm to obtain
research. a superior CFP. The sample analyzed in the present study is in fact
dominated by large companies operating in developed countries,
2. The nexus between corporate green practices and financial and also by industrial firms conducting activities in relatively dirty
performance: literature review and hypotheses development sectors. The first hypothesis can be formulated as the following:
Hypothesis 1. Internal PP practices have a positive impact on CFP.
2.1. Pollution prevention (PP) practices and financial performance

Minimizing waste and emission reduction associated with 2.2. Green supply chain management (GSCM) practices and
industrialization presents an ample opportunity for companies to financial performance
develop technological competencies and organizational capabil-
ities in PP and eco-efficiency (Hart and Milstein, 2003). Besides focusing on operations under the full control of an or-
The literature suggests that emission reduction can be achieved ganization, PP can be achieved by influencing suppliers and stim-
using two major approaches: control (emissions and effluents are ulating them to reduce the environmental impacts of their
treated and disposed using pollution prevention equipment) or activities. In recent years, GSCM initiatives are seen as a funda-
prevention approach (emissions and effluents are reduced or pre- mental part of day-to-day operations (Ketikidis et al., 2013). Ac-
vented using recycling, material substitution or innovation tech- cording to Srivastava (2007), GSCM can be defined as “integrating
nologies) (Hart and Ahuja, 1996). The former approach utilizes environmental thinking into supply chain management, including
expensive pollution control equipment ‘at the end of the pipe’ in product design, material sourcing and selection, manufacturing
order to comply with existing environmental regulations, while the processes, delivery of the final product to the consumers as well as
latter approach is focused on reducing waste and emissions from end-of-life management of the product after its useful life” (p. 55).
current operations resulting in reduced compliance costs, minimal GSCM has a potential to provide a firm a first-mover advantage and
future liabilities and lower costs for raw materials and waste can help to develop a new business model and contribute positively
disposal (Sarkis and Cordeiro, 2001). Significantly better to overall competitiveness of a firm (Sarkis, 2003). It can also lead to
manufacturing performance has been found in those plants where environmental collaborations with customers, suppliers and other
environmentally-oriented investments were increasingly allocated stakeholders determining both environmental and financial bene-
towards PP technologies (Graham and McAdam, 2016). Reducing fits (Dangelico and Pontrandolfo, 2015). Companies have developed
emissions via PP appears to be more efficient rather than control ‘at a broad range of GSCM activities: written policies and communi-
the end of the pipe’. cation materials, questionnaires and audits, training and technical
The rationale behind PP is similar to the quality management assistance, collaborative research and development, eco-design,
principle that preventing manufacturing waste and emissions from lean operations, supplier purchasing, purchasing policies, restruc-
current operations is a better option than finding and fixing them turing relationship with customers and suppliers (Golicic and
after they occur. Efficient PP requires substantial employee Smith, 2013).
commitment, along with well-developed skills and capabilities in Several scholars find that manufacturing firms with high levels
continuous improvement and total quality management systems of GSCM practice adoption exhibit above-average accounting-
(Hart and Milstein, 2003). A series of studies conducted in the U.S. based and operational performance in emerging markets (Zhu and
has found that pollution reduction is significantly correlated with Sarkis, 2004) and in developed economies (Testa and Iraldo, 2010).
CFP over the time period 1987e1996 (King and Lenox, 2001) and There is also some evidence in the literature that service industries
for the years 1991e1996 (King and Lenox, 2002). Hart and Ahuja benefit financially from GSCM practices as well (Carmona-Moreno
(1996) find that efforts to prevent pollution and reduce emissions et al., 2004).
increase CFP within one or two years of initiation. Recently, Lucas In regard to the market valuation of GSCM practices, Bose and
and Noordewier (2016) revealed that environmental management Pal (2012) analyze 104 firm announcements related to GSCM us-
practices, including PP actions, have a greater effect on financial ing an event study and find that plans for adopting GSCM cause a
342 I. Miroshnychenko et al. / Journal of Cleaner Production 147 (2017) 340e351

statistically significant gain in stock prices for a firm. They show impact, it can help a firm to develop a valuable organizational
that manufacturing firms and earlier adopters of GSCM experience capability, which is difficult to imitate by rivals (Delmas, 2001). ISO
stronger positive impact on their stock prices than non- 14001 is a largely voluntary standard which is based on a non-
manufacturing firms. This suggests that adoption of GSCM prac- obligatory approach to environmental regulation (Corbett and
tices is indeed valued by the market. Kirsch, 2001). It defines general requirements for how an envi-
A recent meta-analysis covering 20 years of research on the link ronmental management systems should be set up according to a
between GSCM practices and different CFP measures concludes circular decision making scheme named Deming Cycle (Heras-
that the overall effect of these practices is positive (Golicic and Saizarbitoria et al., 2013). The adoption of EMS recognized by an
Smith, 2013). Given these results, it can be expected that more external certification provides a clear signal to the market of a
green firms, in terms of better GSCM practices, are likely to have a company’s commitment to environmental management (Nishitani,
higher CFP due to improved brand image and fruitful environ- 2009).
mental collaborations with different stakeholders. This leads to the Some research documents that the adoption of ISO 14001 helps
second hypothesis: a company to improve its environmental performance (Potoski
and Prakash, 2005), while empirical findings on the link be-
Hypothesis 2. GSCM practices have a positive impact on CFP.
tween EMS standards’ adoption and CFP are somewhat contra-
dictory (Heras-Saizarbitoria et al., 2011). Some scholars do not find
any effect of EMS implementation on firm financial and market
2.3. Green product development (GPD) practices and financial
performance (Watson et al., 2004). Link and Naveh (2006) exam-
performance
ined whether ISO 14001 helps Israeli firms to reduce their envi-
ronmental impact and, thereby, enhance their CFP. They support
The amount of firms involved in GPD is growing substantially
the former hypothesis, but not the latter. A more recent panel
(Dangelico et al., 2013). Environmental approaches such as eco-
analysis of 195 Spanish firms by Heras-Saizarbitoria et al. (2011)
design, design for environment, green marketing programs and
did not find that ISO 14001 implementers have better CFP than
extended producer responsibility are becoming more and more
non-implementers in terms of ROA (return on assets) and sales
popular in the corporate landscape (Pujari, 2006).
growth. In contrast with this evidence, Feng and Wang (2016)
Typically a ‘green product’ is defined as a product developed to
using self-reported data from Chinese manufacturer found that
minimize its environmental footprint during its entire life-cycle.
EMS adoption has a positive influence on financial performance
Production of green products involves minimized non-renewable
and this relationship is moderated by switching cost (negatively)
source usage, elimination of toxic materials, and prevention of
and competitive intensity (positively). Further empirical research
waste at the conception stage (Albino et al., 2009). A firm can
showed that the adoption of ISO 14001 leads to higher CFP at the
achieve a substantial cost reduction as well as opportunities to
firm level (Wahba, 2008) and improves country-level economic
increase the quality of its services and products (Kushwaha and
growth (Daddi et al., 2015).
Sharma, 2015). Integration of environmental issues into new
Given that a large stream of literature emphasizes the significant
products leads to the creation of new opportunities for firms such
role of ISO standards in driving CFP (Feng and Wang, 2016), it can be
as opening new markets, new technologies and product arenas
argued that ISO 14001 can have a positive impact on CFP due to the
(Dangelico et al., 2013). Through GPD, firms can develop unique
fact that stakeholders’ involvement in a firm’s ISO 14001 can
organizational environmental capabilities that help to integrate,
become a valuable and unique organizational capability (Delmas,
coordinate, build and reconfigure its resources and competences
2001). The fourth hypothesis can be stated as follows:
for achievement of environmental goals and sustained competitive
advantage (Chen, 2008). Hypothesis 4. ISO 14001 adoption has a positive impact on CFP.
A recent survey of 63 studies on ‘pay to be green’ emphasizes
that GPD provides simultaneously economic, market and financial
3. Methodology
benefits for a firm (Dangelico and Pontrandolfo, 2015). Some
scholars show that firms that are actively involved in the green
3.1. Data description
design of the product have a superior CFP in comparison with those
who produce a small number of green products or do not do it at all
The starting point of data collection is a Thomson Reuters
(Lin et al., 2013). Kushwaha and Sharma (2015) show that green
dataset, namely the ASSET4 full universe list, provided by team of
initiatives, including green products, green advertisement, eco-
130 analysts that systematically collects environmental, social and
labels, significantly shape CFP in the automobile industry. Others
governance (ESG) data covering constituents of principal stock
document a positive impact of green products and services, and
indices. ASSET4 strictly sources publicly available information,
recycling activities on business performance in the wine industry
including sustainability/CSR reports, company websites, annual
(Leenders and Chandra, 2013).
reports, proxy filings, as well as news of all major providers.
On the basis of the afore-mentioned empirical findings, firms
In contrast to the KLD database that provides ESG data only
with high GPD rate are likely to experience superior CFP in com-
for listed US companies, ASSET4 has more representative popu-
parison with firms that have no or at least no significant amount of
lation of publicly-traded companies worldwide, and provides
GPD practices. This argument is summarized in the third
more comprehensive calculation of the rating scores (Shaukat
hypothesis:
et al., 2015). Around 900 data points are used as inputs to
Hypothesis 3. GPD practices have a positive impact on CFP. calculate 250 key performance indicators (KPIs). These KPIs are
further classified into 18 categories within four pillars: environ-
mental, social, corporate governance and economic. The avail-
2.4. Environmental management system (EMS) standards and ability of disaggregated ASSET4 data allowed the authors to
financial performance model individual and combined effects of heterogeneous green
practices on CFP (as described further in Section 3.2) taking into
The importance of EMS standards for manufacturing companies account the inherent multidimensionality of CEP (Endrikat et al.,
is paramount because apart from reducing firm’s environmental 2014).
 I. Miroshnychenko et al. / Journal of Cleaner Production 147 (2017) 340e351 343

Table 1 future gains (Tobin’s q, market capitalization, stock market per-

Sample composition. formance), and/or accounting-based indicators (i.e., return on eq-
Total number of firms 3490 uity (ROE), ROA, return on sales (ROS)) that capture a firm’s current
ability to create value by using its assets (Sa nchez-Ballesta and
Financial data Environmental data
García-Meca, 2007). Tobin’s q and ROE have been used to account
Number of % of Number of % of
for both market- and accounting-based measures of CFP.
observations sample observations sample
Tobin’s q is estimated as the ratio between (book value of total
Incumbent firms in all 31,083 76.81 6331 24.83
assets e book value of shareholder’s equity þ market value of
period 2002e2014
Firms entering in the 7485 18.50 17,266 67.72 shareholder’s equity) and (book value of total assets).
period 2002e2014 ROE is defined as (net income e preferred dividend re-
Firms exiting in the 1899 4.69 1899 7.45 quirements) divided by the average of last year’s and current year’s
period 2002e2014 common equity. To reduce the weight of extreme outliers, Tobin’s q
Total 40,467 100.00 25,496 100.00 and ROE have been winsorized at the 5th and 95th percentiles.
As independent variables, four types of corporate green prac-
tices, namely PP, GSCM, GPD and ISO 14001, have been considered
as determinants of CFP.
In order to ensure high data quality, every piece of information In order to capture the individual and integrated effects of green
is subject to a multi-step verification and process control, which practices on CFP, internal PP Index (PPI), GSCM Index (GSCMI) and
includes a series of data entry checks, automated quality rules and Green Product Index (GPI) have been constructed using KPIs from
historical comparisons. Different investors representing more than emission reduction, resource reduction and product innovation
2,5 trillion in assets under management e like the prominent in- categories of the environmental pillar of ASSET4. The resource
vestment house BlackRock e build their portfolios by integrating reduction category measures a company’s management commit-
ESG data into their traditional investment analysis (Cheng et al., ment and effectiveness towards achieving an efficient use of nat-
2014). A number of recent studies in both environmental man- ural resources in the production process. The emission reduction
agement (Shaukat et al., 2015) and finance literature (Halbritter and category measures a company’s management commitment and
Dorfleitner, 2015) have used ASSET4 ESG data as well. effectiveness towards reducing environmental emission in the
The ASSET4 full universe list covers ESG performance of 5059 production and operational processes. The product innovation
industrial, utility, transportation and financial publicly-traded cor- category measures a company’s management commitment and
porations from America, Africa, Asia and Europe starting from the effectiveness towards supporting the R&D of eco-efficient products
fiscal year 2002. Industries where environmental activities do not or services. All three afore-mentioned categories form an envi-
matter or matter little at most (aerospace, financial, recreation, ronmental pillar of ASSET4 that assesses an overall company’s
retailers, tobacco, drugs, cosmetics and healthcare industries) have impact on living and non-living natural systems (ASSET4
been excluded. Financial and accounting firm-level data have been documents).
collected from Thompson Reuters Datastream. In total, the final To measure internal PP actions the authors referred to initiatives
sample includes 3490 publicly-traded firms from 58 countries and carried out by organizations to reduce or improve specific envi-
19 industrial sectors covering the period from 2002 till 2014 ronmental performance and that are mentioned in previous
inclusively. research on PP practices, that is: air emission (Hart and Ahuja,
As shown in Table 1, there are three types of firms in the sample: 1996); nitrogen and sulfur oxides emission (Hoque and Clarke,
a) firms existing in the ASSET4 full universe list for the entire period 2013); waste and e-waste reduction (Franchetti, 2011); particular
of analysis (2002e2014); b) firms entering the sample during the matter and volatile organic compounds emission (Newbold, 2006);
period of analysis (2002e2014); c) firms exiting during the period emission from transport (Comoglio and Botta, 2012); water and
of analysis (2002e2014) if they become privately held, merged, energy efficiency (Gusmerotti et al., 2012); toxic chemicals reduc-
liquidated or otherwise inactive. This allows the present study to tion (Nishitani et al., 2011).
mitigate the survivorship bias problem, because statistical in- The following practices of GSCM have been included to develop
ferences can be biased if a study does not include firms that did not the construct GSCM Index: implementation of processes to include
exist till the end of the period. supply chain in the company’s efforts to lessen its overall envi-
The breakdown by countries shows that the largest part of the ronmental impact (Srivastava, 2007); use of environmental
sample belongs to the US (23.64% of the total), the world’s largest criteria to source or eliminate materials (Sarkis, 2003); use of
economy, while other Anglo-Saxon countries (Australia, Canada environmental criteria in the selection process of suppliers (Testa
and the UK), weigh in the sample around 26.16%. Some 12.72% of and Iraldo, 2010); phasing out selection procedures (Handfield
the sample belong to the European Union (EU). Other countries et al., 2005).
show a fairly widespread distribution, with the exception of Japan To measure Green Product Index (GPI) the authors selected
that has around 4225 observations representing 9.31% of the practices aiming to reduce the environmental impact of a product
sample. The sample comprises primarily from the manufacturing such as complying with an environmental performance product
firms (84.90%), while utilities and transportation represent only standard (Testa et al., 2015b), producing a product which promotes
10.63% and 4.47% of the sample. Electronics (12.58%), oil and gas a cost-effective and environmentally preferable use (Nissinen et al.,
(11.24%) are the most represented manufacturing firms in the 2007), and eco-design practices (Zhu et al., 2005).
sample. The dummy variable ISO was constructed to measure the
adoption of environmental management standards (equals one if
3.2. Variables the company has either ISO 14001 certification, or both ISO 14001
and EMS certifications, and zero otherwise) following Testa et al.
Concerning dependent variable, extent research on CFP widely (2014). Table 2 provides a detailed description of all the green
uses either market-based indicators that capture firm’s current and practices’ proxies.
344 I. Miroshnychenko et al. / Journal of Cleaner Production 147 (2017) 340e351

Table 2
Definition of green practices.

Variable Description

Internal Pollution Prevention Index Sum of the 10 emission and resource reduction KPIs:
(PPI) 1. Emissions (Does the company describe, claim to have or mention processes in place to improve emission reduction?-Yes ¼ 1/
No ¼ 0);
2. Nitrogen oxides (NOx) and Sulfur Oxides (SOx) Emissions Reduction (Does the company report on initiatives to reduce, reuse,
recycle, substitute, or phase out SOx or NOx emissions?-Yes ¼ 1/No ¼ 0);
3. Volatile Organic Compounds (VOC) Emissions Reductions (Does the company report on initiatives to reduce, substitute, or phase
out VOC?-Yes ¼ 1/No ¼ 0);
4. Particular Matter Emissions Reductions (Does the company report on initiatives to reduce, substitute, or phase out particulate
matter less than ten microns in diameter (PM10)?- Yes ¼ 1/No ¼ 0);
5. Waste Reduction Total (Does the company report on initiatives to recycle, reduce, reuse, substitute, treat or phase out total
waste?-Yes ¼ 1/No ¼ 0);
6. e-Waste Reduction (Does the company report on initiatives to recycle, reduce, reuse, substitute, treat or phase out e-waste?-
Yes ¼ 1/No ¼ 0);
7. Staff Transportation Impact Reduction (Does the company report on initiatives to reduce the environmental impact of
transportation used for its staff?-Yes ¼ 1/No ¼ 0);
8. Water Efficiency (Does the company describe, claim to have or mention processes in place to improve its water efficiency?-
Yes ¼ 1/No ¼ 0);
9. Energy Efficiency (Does the company describe, claim to have or mention processes in place to improve its energy efficiency?-
Yes ¼ 1/No ¼ 0);
10. Toxic Chemicals or Substances Reduction (Does the company report on initiatives to reduce, reuse, substitute or phase out toxic
chemicals or substances?-Yes ¼ 1/No ¼ 0);
The PPI ranges from 0 (highest polluters) to 10 (lowest polluters).
Green Supply Chain Management Sum of the 4 resource reduction KPIs:
Index (GSCMI) 1. Environmental Supply Chain (Does the company describe, claim to have or mention processes in place to include its supply chain
in the company’s efforts to lessen its overall environmental impact?-Yes ¼ 1/No ¼ 0);
2. Materials Sourcing Environmental Criteria (Does the company claim to use environmental criteria (e.g., life cycle assessment) to
source or eliminate materials?-Yes ¼ 1/No ¼ 0);
3. Environmental Supply Chain Management (Does the company use environmental criteria (ISO 14001, energy consumption, etc.)
in the selection process of its suppliers or sourcing partners?-Yes ¼ 1/No ¼ 0);
4. Environment Supply Chain Partnership Termination (Does the company report or show to be ready to end a partnership with a
sourcing partner, if environmental criteria are not met?-Yes ¼ 1/No ¼ 0);
The GSCMI ranges from 0 (weak GSCM practices) to 4 (strong GSCM practices).
Green Product Index (GPI) Sum of the 3 product innovation KPIs:
1. Environmental Products (Does the company report on at least one product line or service that is designed to have positive effects
on the environment or which is environmentally labeled and marketed?-Yes ¼ 1/No ¼ 0);
2. Product Environmental Responsible Use (Does the company report about product features and applications or services that will
promote responsible, efficient, cost-effective and environmentally preferable use?-Yes ¼ 1/No ¼ 0);
3. Eco-design Products (Does the company report on specific products which are designed for reuse, recycling or the reduction of
environmental impacts?-Yes ¼ 1/No ¼ 0);
The GPI ranges from 0 (weak GPD practices) to 3 (strong GPD practices).
ISO 14001 (ISO) ISO 14001 (Does the company claim to have an ISO 14001 certification?-ISO or both ISO and EMS ¼ 1, and otherwise ¼ 0)

As control variables, in all the models financial leverage, sales practices and CFP can run in both directions (Endrikat et al., 2014),
growth, firm size, country, industry and year dummies have been potentially endogenous corporate green practices’ measures and
included. control variables have been lagged to minimize the simultaneity
Given that firms with high indebtedness experience significant issues (Ng and Rezaee, 2015). Independent variables at time t-1
financial constraints and, ultimately, deliver inferior CFP (Gleason have been used instead of any other further lags due to missing
et al., 2000), the leverage ratio is included in the present study as values, mainly in green practices’ variables. Taking other lags will
a proxy of financial distress (estimated as the ratio of total debt to result in losing a substantial number of observations leading to a
total assets). There is also a vast amount of research that suggests significant reduction in sample size.
that sales growth has a positive influence on firm profitability
(Delmar et al., 2013). The log-difference of net sales for firm i be-
Perit ¼ b0 þ b1 ðPPIit1 Þ þ b2 ðGSCMIit1 Þ þ b3 ðGPIit1 Þ
tween time t and t-1 is adopted as a proxy of the sales growth
(García-Manjo n and Romero-Merino, 2012). The natural logarithm þ b4 ðISOit1 Þ þ b5 ðControlsit1 Þ þ dt þ ci þ ii þ εit (1)
of total assets has been included in all the regressions to control for
the effect of firm size (Becker-Blease et al., 2010). Country, industry where Perit is a proxy of CFP (measured as Tobin’s q or ROE), PPIit-1 is
and year dummies have been included in order to capture the a proxy for a firm’s pollution prevention, GSCMIit-1 is a proxy for a
heterogeneity across different countries, industrial sectors and time firm’s green supply chain management, GPIit-1 is a proxy for a firm’s
periods. green product development, ISOit-1 is a proxy for a firm’s environ-
mental management standards, Controlsit-1 is a vector of control
variables that include financial leverage (total debt-to-total assets
3.3. Econometric model ratio), sales growth (difference of logs of net sales) and firm size
(the natural logarithm of total assets). dt, ci and ii represent time,
Equation (1) has been used as the main explanatory model to country and industry dummies. εit is an error term.
test both the individual and combined effects of corporate green The ordinary least squares (OLS) estimator has been adopted to
practices (PPI, GSCMI, GPI and ISO 14001) on CFP, which is a lead- estimate the main explanatory model. While the autocorrelation
lag approach after controlling for country-, industry- and year- problem is of serious concern in macro panels consisting of long
fixed effects. Since the causality link between corporate green time series over 20e30 years (Baltagi, 2008), the authors estimate
 I. Miroshnychenko et al. / Journal of Cleaner Production 147 (2017) 340e351 345

the OLS regressions in micro panel using the Huber-White sand- U.S. (King and Lenox, 2001), but also across the rest of the world.
wich estimator, to account for the heteroscedasticity problem (Long According to Hart and Ahuja (1996) the results confirm that
and Ervin, 2000). A series of univariate tests have been performed reduction of pollutant emissions increase internal efficiency and
as well to compare whether the mean differences and median consequently company’s profitability. Differently from them, it
differences in green practices and in financial performance across clarifies that the return of green investment is even shorter than 3
European countries and the rest of the world are statistically sig- years. Additionally, the results confirm what Ambec and Lanoie
nificant (Table 3). The results indicate that European countries have (2008) hypothesized that external investors, as highlighted by the
higher PPI and GSCMI in comparison with the rest of the world. positive and significant relation between PPI and Tobin’s q, reward
European countries are the second strongest cluster in GPI and ISO the reduction of environmental risks in capital markets.
after Japan. The authors also find statistically significant differences In models (3) and (4) a positive and highly statistically signifi-
in terms of both Tobin’s q and ROE between European states and cant effect of GSCMI on CFP is documented, confirming the positive
other countries. relationship between operating performance of a firm and GSCMI
Correlations for the key variables used in the paper are pre- as highlighted in previous research focused on specific sectors
sented in Table 4. The authors observe statistically significant cor- (Testa and Iraldo, 2010) or geographical contexts (Zhu and Sarkis,
relations between green practices’ measures suggesting that 2004). The empirical findings of this study integrate the main
multicollinearity might be a problem. The variance inflation factors conclusion reached by the event analysis carried out by Bose and
(VIF) of all the independent and control variables were calculated to Pal (2012). Not only GSCM announcements have immediate posi-
test the effects of multicollinearity in the regression analysis. The tive effects on stock prices of a company on the day of announce-
mean VIF values in all the models (with a minimum of 2.76 and ment, but GSCM practices increase a future company’s valuation as
maximum of 2.82) indicate the absence of the multicollinearity well.
(O’Brien, 2007). As regards GPI, the empirical model reveals a positive and highly
significant impact on both Tobin’s q and ROE (models 5 and 6). This
4. Results & discussion result sheds a definitive light on the positive effect of green product
initiatives on company’s profitability and value of a firm by con-
4.1. The impacts of green practices on CFP firming findings from previous research that included these prac-
tices in larger dimension of green initiatives (Lin et al., 2013) or
Table 5 reports the main findings using both Tobin’s q and ROE results of prior research focused on specific industry context (see
as CFP proxies. In order to examine both the individual and com- Kushwaha and Sharma, 2015). Operators of capital markets and
bined effects of green practices on CFP, green practices’ variables final consumers are by the time mature on environmental issues
have been included in the model as follows: with models (1) and related to products. The former recognizes the ability of eco-design
(2) including only PPI and control variables, models (3) and (4) and environmental product initiatives to satisfy the ever-increasing
GSCMI, models (5) and (6) GPI, models (7) and (8) ISO, models (9) market segments and generate long-lasting revenues (Ambec and
and (10) taking acount of the all green practices simultaneously. Lanoie, 2008). The latter shows their will to valorize the green at-
As shown in models (1) and (2), the regression coefficients tributes of a product among the selection criteria used in their
suggest that reduced pollution is correlated with CFP not only in the purchasing decisions (Darnall et al., 2016).

Table 3
Descriptive data of the sample.

Country Q ROE Leverage Growth Size PPI GSCMI GPI ISO

All countries 100.00% Mean 1.705 0.120 0.246 0.121 16.033 2.598 1.016 0.792 0.489
Median 1.401 0.118 0.235 0.081 15.694 2.000 0.000 0.000 0.000
Std. Dev. 0.871 0.159 0.180 0.299 2.931 2.449 1.347 1.090 0.500
EU 12.72% Mean 1.525 0.129 0.272 0.061 15.681 3.314 1.541 1.016 0.692
Median 1.312 0.130 0.261 0.050 15.602 3.000 1.000 1.000 1.000
Std. Dev. 0.700 0.151 0.164 0.217 1.673 2.486 1.501 1.152 0.462
Australia 9.80% Mean 1.895*** 0.054*** 0.176*** 0.232*** 12.466*** 1.606*** 0.535*** 0.429*** 0.257***
Median 1.509*** 0.071*** 0.138*** 0.117*** 12.516*** 0.000*** 0.000*** 0.000*** 0.000***
Std. Dev. 1.055 0.201 0.183 0.557 2.229 2.038 1.043 0.823 0.437
Canada 8.54% Mean 1.766*** 0.056*** 0.207*** 0.187*** 13.755*** 1.902*** 0.415*** 0.350*** 0.221***
Median 1.468*** 0.066*** 0.194*** 0.118*** 13.900*** 1.000*** 0.000*** 0.000*** 0.000***
Std. Dev. 0.920 0.167 0.175 0.401 2.021 2.302 0.915 0.722 0.415
Japan 9.31% Mean 1.303*** 0.067*** 0.260*** 0.048*** 20.302*** 3.143*** 1.348*** 1.252*** 0.754***
Median 1.118*** 0.066*** 0.244*** 0.041*** 20.197*** 3.000** 1.000*** 1.000*** 1.000***
Std. Dev. 0.597 0.100 0.191 0.175 1.275 2.430 1.363 1.254 0.431
USA 23.64% Mean 1.921*** 0.130 0.260*** 0.098*** 15.323*** 2.158*** 0.796*** 0.737*** 0.286***
Median 1.615*** 0.131 0.248*** 0.079*** 15.257*** 1.000*** 0.000*** 0.000*** 0.000***
Std. Dev. 0.907 0.157 0.183 0.230 1.380 2.493 1.264 1.070 0.452
UK 7.82% Mean 1.783*** 0.160*** 0.223*** 0.094*** 13.857*** 2.757*** 1.243*** 0.627*** 0.600***
Median 1.522*** 0.155*** 0.204*** 0.066*** 13.766*** 3.000*** 1.000*** 0.000*** 1.000***
Std. Dev. 0.840 0.165 0.18 0.238 1.628 2.050 1.354 0.970 0.490
Others 28.17% Mean 1.654*** 0.156*** 0.258*** 0.149*** 17.605*** 2.760*** 0.954*** 0.750*** 0.551***
Median 1.362*** 0.145*** 0.251*** 0.119*** 17.272*** 3.000*** 0.000*** 0.000*** 1.000***
Std. Dev. 0.849 0.144 0.173 0.272 2.668 2.425 1.313 1.056 0.500

The variables are the following: Q is the ratio between (book value of total assets e book value of shareholder’s equity þ market value of shareholder’s equity) and (book value
of total assets), ROE is the ratio between (net income e preferred dividend requirements) divided by the average of last year’s and current year’s common equity, Leverage is
the ratio between total debt and total assets ratio, Growth is differences of logs of net sales, Size is the natural logarithm of total assets, PPI is internal pollution prevention
index, GSCMI is green supply chain management index, GPI is green product index and ISO is a dummy variable that takes value of 1 if the firm has ISO or both EMS and ISO. P-
values of independent sample t-tests with unequal variances and of Wilkinson rank-sum tests between European countries and other countries are reported as following:
yp<,10; *p<,05; **p<,01; ***p<,001.
346 I. Miroshnychenko et al. / Journal of Cleaner Production 147 (2017) 340e351

Table 4
Correlation coefficient matrix.

Variable 1 2 3 4 5 6 7 8 9

1 Q 1.00
2 ROE 0.46*** 1.00
3 Leverage 0.27*** 0.10*** 1.00
4 Growth 0.18*** 0.17*** 0.05*** 1.00
5 Size 0.29*** 0.06*** 0.19*** 0.06*** 1.00
6 PPI 0.15*** 0.02* 0.08*** 0.13*** 0.33*** 1.00
7 GSCMI 0.11*** 0.01 0.04*** 0.12*** 0.23*** 0.64*** 1.00
8 GPI 0.13*** 0.05*** 0.02*** 0.13*** 0.25*** 0.54*** 0.54*** 1.00
9 ISO 0.18*** 0.02*** 0.04*** 0.11*** 0.31*** 0.48*** 0.43*** 0.38*** 1.00

The variables are the following: Q is the ratio between (book value of total assets e book value of shareholder’s equity þ market value of shareholder’s equity) and (book value
of total assets), ROE is the ratio between (net income e preferred dividend requirements) divided by the average of last year’s and current year’s common equity, Leverage is
the ratio between total debt and total assets ratio, Growth is differences of logs of net sales, Size is the natural logarithm of total assets, PPI is internal pollution prevention
index, GSCMI is green supply chain management index, GPI is green product index and ISO is a dummy variable that takes value of 1 if the firm has ISO or both EMS and ISO.
yp<,10; *p<,05; **p<,01; ***p<,001.

Table 5
The impacts of green practices on CFP.

Dependent Q ROE Q ROE Q ROE Q ROE Q ROE

variable
Model (1) Model (2) Model (3) Model (4) Model (5) Model (6) Model (7) Model (8) Model (9) Model (10)

Constant 4.631*** 0.158*** 4.507*** 0.138*** 4.409*** 0.129*** 4.186*** 0.116*** 4.629*** 0.162***
(46.31) (8.70) (46.01) (7.82) (45.18) (7.33) (43.20) (6.64) (46.57) (8.83)
Leverage 0.578*** 0.046*** 0.583*** 0.047*** 0.591*** 0.048*** 0.605*** 0.049*** 0.570*** 0.045***
(16.22) (5.97) (16.32) (6.07) (16.54) (6.20) (16.92) (6.37) (16.03) (5.83)
Growth 0.331*** 0.064*** 0.322*** 0.063*** 0.320*** 0.062*** 0.308*** 0.062*** 0.325*** 0.064***
(13.81) (11.72) (13.44) (11.50) (13.35) (11.48) (12.81) (11.36) (13.61) (11.71)
Size 0.193*** 0.003** 0.185*** 0.002y 0.175*** 0.001 0.160*** 0.000 0.194*** 0.003***
(37.72) (3.09) (37.39) (1.77) (36.33) (0.76) (33.59) (0.17) (37.69) (3.34)
PPI 0.032*** 0.004*** 0.027*** 0.003***
(13.46) (8.18) (9.19) (5.37)
GSCMI 0.054*** 0.006*** 0.038*** 0.003**
(12.51) (6.68) (7.71) (2.87)
GPI 0.046*** 0.006*** 0.021*** 0.003*
(8.58) (5.34) (3.56) (2.04)
ISO 0.050*** 0.003 0.125*** 0.005y
(4.40) (1.46) (10.23) (1.95)
Z1 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
(88) (88) (88) (88) (88) (88) (88) (88) (91) (91)
Z2 (10) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Z3 (55) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Z4 (19) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
N 21,471 21,055 21,471 21,055 21,466 21,050 21,472 21,056 21,465 21,049

Adj. R2 0.278 0.134 0.277 0.133 0.274 0.133 0.273 0.132 0.283 0.135

This table presents the coefficients and t-statistics (in parentheses) using OLS regressions with Huber-White heteroscedasticity-consistent standard errors. The variables are
the following: Q is the ratio between (book value of total assets e book value of shareholder’s equity þ market value of shareholder’s equity) and (book value of total assets),
ROE is the ratio between (net income e preferred dividend requirements) divided by the average of last year’s and current year’s common equity, Leverage is the ratio between
total debt and total assets ratio, Growth is differences of logs of net sales, Size is the natural logarithm of total assets, PPI is internal pollution prevention index, GSCMI is green
supply chain management index, GPI is green product index and ISO is a dummy variable that takes value of 1 if the firm has ISO or both EMS and ISO. Z1 is a Wald test of the
joint significance of the reported coefficients (p-value). Z2 is a Wald test of the joint significance of the time dummies (p-value). Z3 is a Wald test of the joint significance of the
country dummies (p-value). Z4 is a Wald test of the joint significance of the industry dummies (p-value). yp<,10; *p<,05; **p<,01; ***p<,001.

In model (7), it emerges that the adoption of a certified EMS has EMS standards and business performance remains unclear. This
a slight negative and statistically significant impact on CFP, represents a further evidence of what Iraldo et al. (2009) found in
measured as Tobin’s q. This result suggests that investors tend to their empirical model: the link between EMS adoption and busi-
perceive the adoption of EMS standard as an unreliable initiative to ness performance depends on how an organization integrates the
reduce environmental risks and improve environmental perfor- standard requirements in its strategy and operations.
mance. Even if this result can be considered unexpected, it confirms The above mentioned conclusions are confirmed also in the
the risk of credibility loss that these kind of standards have to face comprehensive models (models 9 and 10), where PPI, GSCMI and
in the upcoming years. As emphasized by an emerging piece of EMS GPI have positive and highly statistically significant effects on CFP.
literature, the vagueness of the standard’s requirements (Heras- Concerning the control variables, as expected, sales growth is
Saizarbitoria and Boiral, 2013) as well as the lack of pro- strongly and positively related to CFP in all the models (Delmar
fessionality in the external auditors (Heras-Saizarbitoria et al., et al., 2013). The authors also observe that the leverage ratio in-
2013) allow the adopters to have a wide margine of manouvre in fluences negatively CFP as postulated by prior research (Gleason
EMS implementation (Boiral, 2007) and can produce a new form of et al., 2000). Firm size is negatively associated with CFP (Becker-
symbolic greenwashing (Testa et al., 2015b). These considerations Blease et al., 2010) and this effect is more pronounced for Tobin’s
all explain the fact that the coefficient of ISO in model (8) is not q. The Wald tests of the joint significance of the country, industry
statistically significant, which means that the relation between and time dummies justify inclusion of country-, industry- and year-
 I. Miroshnychenko et al. / Journal of Cleaner Production 147 (2017) 340e351 347

fixed effects. massive amounts of capital for implementation of ISO standards, it

To further capture the percentage reaction in CFP to percentage is important to understand the heterogeneity of the expected
change in green practices, the elasticities of all green practices have outcomes and that these outcomes are highly influenced by the
been estimated at sample means. Table 6 shows elasticities of the level of internalization of their requirements in daily practices. It
green practices’ variables with respect to CFP. could be useful to reinforce the role of ISO 14001 standard in order
Analysis of individual green practices’ effects on CFP reveals that to increase the reliability of this instrument by removing existing
the elasticity of Tobin’s q to PPI is the highest, followed by the doubts on its efficacy and reducing the possibility to adopt it in a
elasticities of Tobin’s q to GSCMI and to GPI. 10% increase in PPI in symbolic behavior (Testa et al., 2015a). The new version of ISO
the previous year leads to around 0.5% increase in the current 14001 seems to have taken the right direction but more attention
Tobin’s q (model 1), while 10% increases in GSCMI and in GPI in- shall be devoted to the implementation phase.
crease the current Tobin’s q only by 0.3% and 0.2% (models 3 and 5), The secondary role of GPD compared to internal practices
accordingly. A similar picture emerges in model 9 when all green highlights that further actions should be carried out in order to
practices are included in the model simultaneously. The elasticities strengthen the ability of a company to communicate environmental
of ROE to green practices’ variables are slightly higher, but the performance of its products. Even if consumers are increasing their
similar pattern is observed again (PP practices lead to the highest attitudes towards green products as well as their willingness to pay
change in ROE, and GPD practices to the lowest change, while for them (Lanzini et al., 2016), independent schemes which guar-
GSCM practices are located in the middle). antee the truthfulness of the information concerning the environ-
In brief, the major drivers of CFP at the firm level are internal mental footprint of a product are necessary (Testa et al., 2015b).
green practices (PP and GSCM), while external green practices
(GPD) play a secondary role in determining CFP.
5. Sensitivity analysis
4.2. Managerial implications
To ensure robustness of the main findings reported in the pre-
The confirmation of Hypotheses 1, 2 and 3 allows the authors to vious section, a blast of robustness tests using alternative economic
emphasize some important implications for managers. Given the estimators have been conducted (Table 7).
growing attention that top managers worldwide pay to the adop- Primarily, the explanatory model is estimated using the robust
tion and execution of corporate environmental strategies, it is regression estimator (models 1e2), which conducts an initial
important that they understand the key green practices affecting screening based on Cook’s distance >1 to eliminate influential
their CFP. PP, GSCM and GPD practices cover different organiza- outliers and after it conducts Huber iterations followed by biweight
tional aspects of ‘being green’, but all of them bring economic iterations as described by Li (1985) substituting the winsorization
benefits for a company: PP can help to reduce costs and risks, GSCM procedure adopted in the OLS regressions.
can help to develop unique environmental competences and Secondly, the authors re-estimate the explanatory model using
environmental collaborations across the value chain, while GPD Zellner’s seemingly unrelated regression (SUR) estimator (model 3)
practices can improve corporate reputation and help to obtain that controls for contemporaneous cross-equation error term cor-
higher market share. A company may achieve multiple objectives relation (Baltagi, 2008). In this context, equation (2) is used to
through combination of several different green practices simulta- examine the effects of corporate green practices on CFP:
neously leading to sustainable value for all stakeholders involved.  
Regarding EMS, it might be the case that ISO standards help to ðQit ROEit Þ ¼ b0 þ bðBit1 Þ þ y Xit1
q roe
Xit1 þ ðεit uit Þ (2)
develop unique organizational capabilities that were not captured
by the measures adopted in this study. However, before allocating where Qit and ROEit are proxies of Tobin’s Q and ROE, accordingly;

Table 6
Elasticities of the green practices’ variables.

Dependent Q ROE Q ROE Q ROE Q ROE Q ROE

variable
Model (1) Model (2) Model (3) Model (4) Model (5) Model (6) Model (7) Model (8) Model (9) Model (10)

PPI 0.052*** 0.088*** 0.043*** 0.070***

(13.48) (8.17) (9.19) (5.36)
GSCMI 0.033*** 0.049*** 0.024*** 0.024**
(12.53) (6.69) (7.71) (2.88)
GPI 0.023*** 0.039*** 0.010*** 0.016*
(8.58) (5.33) (3.56) (2.04)
ISO 0.015*** 0.014 0.037*** 0.019y
(4.40) (1.46) (10.23) (1.95)
Control variables Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Time dummies Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Country Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
dummies
Industry Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
dummies

This table presents elasticities for the green practices’ variables with respect to dependent variable (t-statistics are in parentheses). Elasticities are calculated at the mean
values of the independent variables using the specifications from Table 5 (model 1 to model 10). The interpretation of each coefficient is the percentage change in dependent
variable from a percent change in the independent variable. The variables are the following: Q is the ratio between (book value of total assets e book value of shareholder’s
equity þ market value of shareholder’s equity) and (book value of total assets), ROE is the ratio between (net income e preferred dividend requirements) divided by the
average of last year’s and current year’s common equity, PPI is internal pollution prevention index, GSCMI is green supply chain management index, GPI is green product index
and ISO is a dummy variable that takes value of 1 if the firm has ISO or both EMS and ISO. Control variables are the following: Leverage (the ratio between total debt and total
assets ratio), Growth (differences of logs of net sales) and Size (the natural logarithm of total assets). Time, industry and country dummies are included in all the models.
yp<,10; *p<,05; **p<,01; ***p<,001.
348 I. Miroshnychenko et al. / Journal of Cleaner Production 147 (2017) 340e351

Table 7
Robustness check: Alternative estimation techniques.

Method Robust regressions Zellner’s SUR regressions 2SLS regressions

Dependent Q ROE Q ROE Q ROE

variable
Model (1) Model (2) Model (3) Model (4) Model (5)

Constant 2.753*** 0.156*** 4.469*** 0.161*** 3.856*** 0.019

(45.75) (11.43) (52.67) (9.26) (39.37) (1.03)
Leverage 0.189*** 0.033*** 0.744*** 0.046*** 0.602*** 0.125***
(8.66) (6.41) (23.35) (7.06) (15.57) (14.68)
Growth 0.182*** 0.068*** 0.335*** 0.064*** 0.535*** 0.126***
(12.86) (21.17) (16.82) (15.62) (18.20) (17.02)
Size 0.091*** 0.002* 0.181*** 0.003*** 0.163*** 0.004***
(27.83) (2.25) (39.13) (3.48) (29.10) (3.40)
PPI 0.014*** 0.002*** 0.026*** 0.003*** 0.027*** 0.003***
(6.43) (5.15) (8.80) (5.33) (7.21) (3.97)
GSCMI 0.022*** 0.001 0.037*** 0.003** 0.037*** 0.003*
(6.10) (0.80) (7.31) (2.75) (6.21) (2.15)
GPI 0.019*** 0.003*** 0.022*** 0.003* 0.021** 0.002
(4.44) (3.47) (3.55) (2.03) (2.83) (1.03)
ISO 0.024** 0.004* 0.121*** 0.005* 0.160*** 0.007*
(2.84) (2.18) (10.08) (1.97) (10.37) (2.24)
Z1 (91) 0.000 0.000 0.000 0.000 0.000 0.000
Z2 (10) 0.000 0.000 0.000 0.000 0.000 0.000
Z3 (55) 0.000 0.000 0.000 0.000 0.000 0.000
Z4 (19) 0.000 0.000 0.000 0.000 0.000 0.000
Z5 0.000 0.000
Z6 0.062 0.748
N 21,465 21,049 20,988 20,988 18,430 18,037

Adj. R2 0.238 0.170 0.289 0.139 0.273 0.170

This table presents the coefficients and t-statistics (in parentheses) using alternative econometric estimators and alternative dependent variables. Heteroscedasticity-
consistent standard errors are in parentheses. The variables are the following: Q is the ratio between (book value of total assets e book value of shareholder’s
equity þ market value of shareholder’s equity) and (book value of total assets), ROE is the ratio between (net income e preferred dividend requirements) divided by the
average of last year’s and current year’s common equity, Leverage is the ratio between total debt and total assets ratio, Growth is differences of logs of net sales, Size is the
natural logarithm of total assets, PPI is internal pollution prevention index, GSCMI is green supply chain management index, GPI is green product index and ISO is a dummy
variable that takes value of 1 if the firm has ISO or both EMS and ISO. Z1 is a Wald test of the joint significance of the reported coefficients (p-value). Z2 is a Wald test of the joint
significance of the time dummies (p-value). Z3 is a Wald test of the joint significance of the country dummies (p-value). Z4 is a Wald test of the joint significance of the industry
dummies (p-value). Z5 is a Kleibergen-Paap rk LM statistic (p-value). Z6 is Hansen’s J statistic (p-value). yp<,10; *p<,05; **p<,01; ***p<,001.

Bit-1 is a vector of green practices (PPI, GSCMI, GPI and ISO), Xqit-1 adoption of alternative proxies of CFP: the ratio between market
and Xroeit-1 are two vectors of control variables that are known to value of shareholder’s equity and book value of shareholder’s eq-
affect Tobin’s q and ROE, including financial leverage, sales growth uity (MKTBE) and ROA, defined as the ratio between earnings
and firm size, time, country and industry dummies; εit and uit are before interest, taxes, depreciation and amortization divided by
error terms that are correlated with each other. total assets (Earnhart and Lizal, 2007) (Table 8).
Thirdly, the instrumental variable estimator (2SLS) is adopted in As Table 8 shows, the positive effects of PPI, GSCMI, GPI and the
order to further address endogeneity problem between CFP and negative effect of ISO on CFP are confirmed in all the models when
green practices (Rose and Stone, 2011) (models 4e5). In the first MKTBE is used as a dependent variable. Concerning the link be-
stage, green practices (PPIit, GSCMIit, GPIit and ISOit) are regressed tween ROA and green practices, similar results are also obtained for
against the internal instruments (their one- and two-year lagged what concerns the PP, GSCM and ISO practices in all the models,
values) and all other exogenous variables (Controlsit) due to the lack while the effect of GPI is not statistically significant.
of good external instruments (Krafft et al., 2014). In all 2SLS re- Estimation of the explanatory model using a natural logarithm
gressions, instrumental variables satisfy relevancy condition of Tobin’s q, as in Barontini and Caprio (2006), does not alter our
(Kleibergen-Paap rk LM statistic is statistically significant at 1% main findings. In short, the adoption of alternative variable defi-
level), implying that instrumental variables are correlated with nitions largely confirm the empirical evidence presented in the
potentially endogenous variables. In addition, testing for over- previous section.
identifying restrictions using Hansen test does not produce sig- The sensitivity check shows that the results obtained using
nificant results in any of the models suggesting that there is a lack alternative economic estimators and alternative variable defini-
of correlation between our instruments and error term, and thus, tions confirm most of the findings of OLS regressions, with the
our instruments are valid. The instrumental variables adopted in exception of the presence of the positive link between GPD prac-
our model satisfy both relevancy and validity conditions. In the tices and ROA. The authors believe that the present analysis allows
second stage, estimates are obtained by regressing CFP on predicted them to estimate consistently causal effects of green practices on
values of green practices, computed using the parameters from the CFP.
first-stage regression. Given that in the second-stage regressions
the part of green practices that is endogenous to CFP is omitted, the 6. Conclusions
parameters will now be consistently estimated.
The main findings seem to be robust to the adoption of alter- The present study clearly reveals that green practices are related
native estimation techniques, with the exception of model 2 where to company’s future market value, as well as future firm profit-
the effect of GSCMI on ROE is not different from zero. ability, confirming the general theorization that CEP has a signifi-
The sensitivity of results has been also controlled through the cant positive impact on CFP (Ambec and Lanoie, 2008).
 I. Miroshnychenko et al. / Journal of Cleaner Production 147 (2017) 340e351 349

Table 8
Robustness check: Alternative variable definitions.

Method OLS regressions Robust regressions Zellner’s SUR regressions 2SLS regressions

Dependent MKTBE ROA MKTBE ROA MKTBE ROA MKTBE ROA

variable
Model (1) Model (2) Model (3) Model (4) Model (5) Model (6) Model (7)

Constant 6.922*** 0.256*** 4.199*** 0.297*** 6.901*** 0.256*** 5.255*** 0.196***

(31.66) (24.55) (29.10) (36.64) (33.44) (27.98) (24.88) (18.39)
Leverage 0.227* 0.046*** 0.031 0.048*** 0.244** 0.047*** 0.239* 0.081***
(2.46) (12.30) (0.59) (16.13) (3.25) (14.16) (2.40) (19.57)
Growth 0.629*** 0.033*** 0.436*** 0.042*** 0.623*** 0.033*** 1.149*** 0.068***
(11.96) (10.38) (12.85) (21.61) (12.76) (15.23) (17.13) (16.70)
Size 0.317*** 0.009*** 0.152*** 0.010*** 0.315*** 0.009*** 0.255*** 0.007***
(26.48) (15.18) (19.45) (22.61) (28.12) (17.32) (19.52) (11.19)
PPI 0.043*** 0.003*** 0.024*** 0.003*** 0.043*** 0.003*** 0.036*** 0.003***
(5.86) (9.60) (4.68) (9.47) (5.84) (9.43) (4.02) (8.51)
GSCMI 0.104*** 0.002*** 0.046*** 0.002*** 0.104*** 0.002*** 0.110*** 0.002**
(8.52) (3.72) (5.27) (4.17) (8.35) (3.52) (7.42) (3.25)
GPI 0.054*** 0.000 0.060*** 0.000 0.059*** 0.000 0.058** 0.000
(3.74) (0.23) (5.78) (0.73) (3.96) (0.15) (3.21) (0.42)
ISO 0.218*** 0.004** 0.082*** 0.003* 0.215*** 0.004** 0.279*** 0.006***
(7.27) (2.99) (4.02) (2.22) (7.34) (3.06) (7.33) (3.48)
Z1 (91) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Z2 (10) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Z3 (55) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Z4 (19) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Z5 0.000 0.000
Z6 0.101 0.393
N 21,481 21,310 21,481 21,310 21,261 21,261 18,430 18,280

Adj. R2 0.208 0.140 0.222 0.181 0.211 0.145 0.208 0.177

This table presents the coefficients and t-statistics (in parentheses) using alternative variable definitions. Heteroscedasticity-consistent standard errors are in parentheses. The
variables are the following: MKTBE is the ratio between market value of shareholder’s equity and book value of shareholder’s equity, ROA is the ratio between earnings before
interest, taxes, depreciation and amortization divided by total assets, Leverage is the ratio between total debt and total assets ratio, Growth is differences of logs of net sales,
Size is the natural logarithm of total assets, PPI is internal pollution prevention index, GSCMI is green supply chain management index, GPI is green product index and ISO is a
dummy variable that takes value of 1 if the firm has ISO or both EMS and ISO. Z1 is a Wald test of the joint significance of the reported coefficients (p-value). Z2 is a Wald test of
the joint significance of the time dummies (p-value). Z3 is a Wald test of the joint significance of the country dummies (p-value). Z4 is a Wald test of the joint significance of the
industry dummies (p-value). Z5 is a Kleibergen-Paap rk LM statistic (p-value). Z6 is Hansen’s J statistic (p-value). yp<,10; *p<,05; **p<,01; ***p<,001.

This paper makes significant contributions to the literature. apply the framework used in this study across SMEs.
Prior empirical studies on the green practices-CFP nexus are often The green practices’ measures are calculated as composite in-
based on relatively small samples, and are largely focused on a dexes of various ASSET4 KPIs, aggregating a set of dummy variables,
single country. Our paper expands this stream of research by using and capture only the existence of a specific green practice, but do
an extensive dataset covering a large sample of listed firms from 58 not capture its intensity. In this context, potential avenue for future
countries across a long time period (2002e2014). This allows us to research is to develop more sophisticated proxies of green practices
trace the impacts of green practices on CFP in the cross-country and in order to obtain a better understanding of the green practices-CFP
cross-industry setting, obtaining consistent results through nexus.
different estimation techniques. Another research strategy will be to understand the mediating
Unlike prior research that addresses the impacts of different factors within the green practices-CFP relationship. It might be
green practices in an isolated manner (Lo et al., 2012), the present interesting to analyze whether corporate governance as a deter-
study further examines both the individual and combined effects of minant of CFP (Barontini and Caprio, 2006) can also indirectly in-
various green practices on both accounting- and market-based fluence firm profitability and value through its impact on firm’s
measures of CFP. This provides a new view within the environ- green practices.
mental literature and addresses a recent research call on under-
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