When Will Going Green Enhance Firm Performance?: An Abstract

Abstract

Studies of firms’ eco-friendly efforts flourish in trade and academic publications. Despite its size, the literature shows equivocal results on the impact of firms’ initiatives to preserve the natural environment. Corporate executives are increasingly sensitive to the topic of sustainable business operation. However, their suspicion of whether the benefits of firms’ environmental commitment can offset the costs is exacerbated by the lack of consensus among empirical studies. To help resolve this issue, we conduct a meta-analysis of 330 correlations between corporate environmental commitment and firm performance (i.e., effect sizes from 94 empirical studies) to investigate the boundary conditions under which corporate environmental initiatives can boost business bottom line. Given the positive central tendency of the relationship between corporate environmental commitment and firm performance, firms will benefit from their environmental activities. This holds true especially when corporate environmental commitment initiatives are undertaken in partnership with other organizations (i.e., corporate environmental activities performed with partner organizations generate better firm performance, all else being equal). The results also underscore the importance of country-level business environment. Specifically, companies that align their corporate environmental commitment efforts with a country’s cultural values (i.e., long-term orientation), economic situation (i.e., slow economic growth), and ecological conditions (i.e., high environmental degradation) see stronger positive returns. Finally, as the returns on corporate environmental investment may differ across different aspects of company performance, we investigate the influences of companies’ environmental efforts on three major business outcomes, including product (e.g., product quality), process (e.g., efficiency), and market (e.g., profitability) performance. While the impacts of corporate environmental commitment on product and market outcomes are not significantly different, we find a stronger positive effect of this commitment on process than market outcome. In summary, our findings may help guide managers in their attempt to effectively integrate sustainability initiatives into business activities. The differential effects of corporate environmental commitment on firm performance will help executives objectively allocate resources to meet proper performance goals. Our study also seeks to reconcile the inconsistent findings in the extant literature, and provide directions for future research.