Does Better Environmental Performance Affect Revenues, Cost, or Both? Evidence from a Transition Economy

46 Pages Posted: 9 Mar 2007

See all articles by Dietrich Earnhart

Dietrich Earnhart

University of Kansas - Department of Economics; Centre for Economic Policy Research (CEPR)

Lubomir Lizal

Czech Technical University - Faculty of Electrical Engineering; Anglo-American University; Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences

Date Written: February 2007

Abstract

This study analyzes the effect of corporate environmental performance on financial performance in a transition economy. In particular, it assesses whether good environmental performance affects revenues, costs, or both, and if so, in which directions. As environmental performance improves, do revenues rise and costs fall so that profits unambiguously increase? Or vice versa? If both revenues and costs rise (or fall), does better environmental performance improve or undermine profitability? To answer these questions, our study analyzes the links from environmental performance to revenues, costs, and profits using an unbalanced panel of Czech firms from the years 1996 to 1998. The analytical results indicate strongly that better environmental performance improves profitability by driving down costs more than it drives down revenues, consistent with the substantial regulatory scrutiny exerted by environmental agencies and the primary pollution control approach implemented by firms during the sample period.

Keywords: Czech Republic, environmental protection, pollution, financial performance

JEL Classification: D21, G39, Q53

Suggested Citation

Earnhart, Dietrich and Lizal, Lubomir, Does Better Environmental Performance Affect Revenues, Cost, or Both? Evidence from a Transition Economy (February 2007). William Davidson Institute Working Paper No. 856, Available at SSRN: https://ssrn.com/abstract=969038 or http://dx.doi.org/10.2139/ssrn.969038

Dietrich Earnhart (Contact Author)

University of Kansas - Department of Economics ( email )

Lawrence, KS 66049
United States
785-864-2866 (Phone)
785-864-5270 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Lubomir Lizal

Czech Technical University - Faculty of Electrical Engineering ( email )

Technicka 2
Jug. Partyzanu 3
Prague 6, 166 27
Czech Republic

Anglo-American University ( email )

Lazenska 4
11800 Praha 1
Prague 1, 11800
Czech Republic

Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences ( email )

Politickych veznu 7
Prague, 111 21
Czech Republic
+420 2 2400 5114 (Phone)
+420 2 2422 7143 (Fax)

HOME PAGE: http://www.cerge-ei.cz

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
356
Abstract Views
1,489
Rank
153,938
PlumX Metrics