The Moderating Effects of Operations Efficiency on the Links between Environmental Performance and Financial Performance

Abstract

Drawing upon stakeholder theory and the resource-based-view of a firm, we investigate the moderating role of operations efficiency of firms on the link between environmental and financial performance. Extant literature has highlighted that operations efficiency is closely associated with the environmental/financial performance of firms, but there is no empirical study that has investigated how operations efficiency affects the links between environmental and financial performances. We draw on the stakeholder theory to argue that environmental performance could be related to financial performance, and use the resource-based-view to argue that operations efficiency could act as a moderator of this relationship. Using data on the environmental/financial performance of Britain‘s most admired companies, we have found evidence for the moderating impact of operations efficiency. Our results are useful to managers in that they show that improvements in operations efficiency in a company can also help improve environmental/ financial performance and vice versa.

Keywords: Environmental performance, financial performance, operations efficiency, stakeholder theory, resource-based-view.