The objective of this research is to assess how and when environmental management practices impact environmental and corporate performance. Strategic management theory connects management practices with corporate performance through two avenues: cost reduction and value creation. This bifurcation leads to the formulation of two hypotheses connecting environmental and corporate performance. The first hypothesis identifies the set of factors that determines the influence a cost reducing environmental strategy has on corporate performance. In this case, we hypothesize that firms are able to improve corporate performance by pursuing environmental objectives if the costs associated with poor environmental performance are sufficiently responsive to the actions of the firm. The second hypothesis identifies the set of factors that influences corporate performance if the firm pursues a product/process differentiation strategy along environmental dimensions. In this case, the researhcers hypothesize that firms are able to improve corporate performance by pursuing environmental objectives if the firm is able to credibly demonstrate improved environmental performance to its customers and there is sufficient demand for improved environmental performance.
The researchers propose to test their hypotheses in three sectors: power utilities, electronics, and oil and gas. Ther researchers' independent variables on environmental management practices, firms' characteristics, as well as regulatory and competitive environment are gathered through a phone/mail survey questionnaire of 1159 firms. Their dependent variables on firms corporate performance will be derived from public sources namely SEC reports. The statistical analysis will include the seemingly unrelated regression model, the multiple indicators multiple causes model, and simultaneous equation approaches for determining causality between corporate and environmental performance.
This research will reveal the set of regulatory and competitive circumstances that make a firm's environmental performance align with its corporate performance. The researchers expect to find that devices, such as third party eco-ratings, or voluntary programs that help firms credibly communicate environmental performance to regulators and consumers are associated with enhanced corporate performance. In highly regulated industries, the researchers also expect that when firms integrate environmental objectives into their organization and engage in open discussion with regulators and members of the community, they will achieve improved corporate performance by reducing regulation and litigation costs. The information gained will help identify environmental policies that work with the firm's objective of enhanced profitability and therefore will result in more cost-effective allocation of federal and state environmental protection resources.