The Relationship between Environmental Management Systems and Financial Performance with Emphasis on Market Factors

Document Type : Research Paper

Authors

1 Academic Member

2 University of Kurdistan

Abstract


Introduction 
      The relationship between environmental management systems (EMSs) and financial performance has received a high degree of attention in research literature and the results are still contradictory. Most of the findings have shown that environmental performance improves financial performance while others have suggested that the relationship is neutral or even negative. We believe EMSs enhance financial performance due to improved corporate image, quality green products, and reduced internal cost through eco-friendly new technologies. In this study, we suggest that market factors need to be taken into consideration when examining the EMSs-financial performance relationship, because the opportunities and constraints of adopting EMSs are greatly determined by market conditions. We focus on two market contingencies [switching cost (SC) and competitive intensity (CI)] along with variables market turbulence (MT) and firm innovativeness (FI), manifesting the nature of firms' relationships with their customers and competitors respectively. Based on Resource-based view, SC and CI may be the most important market contingencies influencing firms' adoption and implementation of EMSs, and their abilities to profit from such management systems. In this study, we address two important questions: 1) How SC and CI play contingency roles to moderate the relationship between EMSs and financial performance; 2) How SC, CI, MT and FI jointly moderate the relationship between EMSs and financial performance. The purpose of this study is to examine whether and how the performance effects of EMSs depend on SC, CI, MT, FI and/or their combination.
 
Hypotheses 
Research hypotheses are developed as follows: 
H1: There is a positive relationship between EMSs and financial performance.
H2: SC, CI, MT and FI moderate the relationship between EMSs and financial performance. 
 
Methods 
The data required for the research were gathered through a questionnaire distributed between chief executive officer (CEO), chief financial officer (CFO), marketing and purchasing managers of Semnan’s manufacturing firms.  
The questionnaire consists of six sections. 218 questionnaires were distributed and finally 150 questionnaires were collected. After collecting the questionnaires, regression analysis was used to test the research hypotheses.
 
Results and Discussion
Findings in this study reveal that there is a positive relationship between EMSs and financial performance. After entering the moderator variables, four models were obtained. Regarding the criterion of adjusted R squared, the third model was selected as the optimal model. This means that only the switching cost and competitive intensity have the moderating effects on the relationship between EMSs and financial performance. Finally, the moderating effect of the switching cost is positive (direct) and the moderating effect of the competitive intensity is negative (reverse). Thus, this study underpins the important role of market conditions in influencing the performance effect of EMSs. Market conditions such as SC and CI also influence the relationship between EMSs and financial performance jointly. Overall, this study signals the important role of market conditions and calls for further attention to market conditions as potential moderators when investigating the relationship between EMSs and financial performance.
Finally, managers should adapt their firms' degree of EMSs implementation to fit with changing market conditions and to take advantage of the opportunities created by these conditions in order to achieve superior performance.
  

Keywords


ب. انگلیسی
 Auh, S., & Menguc, B. (2005). Balancing exploration and exploitation: The moderating role of competitive intensity. Journal of Business Research, 58(12), 1652-1661.
Baird, P. L., Geylani, P. C., & Roberts, J. A. (2012). Corporate social and financial performance re-examined: Industry effects in a linear mixed model analysis. Journal of Business Ethics, 109(3), 367-388.
Bani Mahd, Ba., Talibania, Gh., & Azoji, H. (2009). Investigating the relationship between environmental performance and financial performance, Quarterly Journal of Financial Accounting and Auditing Research, 1(3), 149-174. (In persian)
Bansal, P., & Hunter, T. (2003). Strategic explanations for the early adoption of ISO 14001. Journal of Business Ethics, 46(3), 289-299.
Bedford, D., Malmi, T., & Sandelin, M. (2016). Management control effectiveness and strategy: An empirical analysis of packages and systems. Accounting, Organizations and Society, 51, 12-28.
Beurden, P. V., & Gössling, T. (2008). The worth of values- A literature review on the relation between corporate social and financial performance. Journal of Business Ethics, 82(2), 407-424.
Chan, R. Y. K., He, H., Chan, H. K., & Wang, W.Y.C. (2012). Environmental orientation and corporate performance: The mediation mechanism of green supply chain management and moderating effect of competitive intensity. Industrial Marketing Management, 41(4), 621-630.
Darnall, N., Henriques, I., & Sadorsky, P. (2008). Do environmental management systems improve business performance in an international setting? Journal of International Management, 14(4), 364-376.
Feng, T., Cai, D., Wang, D. & Zhang, X. (2016). Environmental management systems and financial performance: The joint effect of switching cost and competitive intensity. Journal of Cleaner Production, 113, 781-791.
Feng, T., Zhao, G. & Su, K. (2014). The fit between environmental management systems and organizational learning orientation. International Journal of Production Research, 52(10), 2901-2914.
Friedl, G. & Wagner, S. M. (2012). Supplier development or supplier switching? International Journal of Production Research, 50(11), 3066-3079.
Germain, R., Claycomb, C. & Droge, C. (2008). Supply chain variability, organizational structure, and performance: The moderating effect of demand unpredictability.Journal of Operations Management, 26(5), 557-570.
Ghasemiyeh, R., Ghayori Moghadam, A., & Hajeb, H. (2015). The effect of competition in product market on the degree of relationship between capital structure and business enterprise performance. Journal of Accounting Advances, 6(2), 107-129. (In persian)
Giniuniene, J., & Jurksiene, L. (2015). Dynamic capabilities, innovation and Organizational Learning: Interrelations and Impact on firm performance. Procedia--Social and Behavioral Sciences, 213, 985-981.
Heidarpour, F. & Gharani, M. (2016). The impact of environmental accounting on financial and operational indicators. The Financial Accounting and Auditing Researches, 7(2), 39-50. (In Persian)
Henard, D. H. & Szymanski, D. M. (2001). Why some new products are more successful than others? Journal of Marketing Research, 38(3), 362-375.
Kumar, A., Cantor, D. E. Grimm, C. M. & Hofer, C. (2017). Environmental management rivalry and firm performance. Journal of Strategy and Management, 10(2), 227-247.
Lee, J., Lee, J. & Feick, L. (2001). The impact of switching costs on the customer satisfaction-loyalty link: Mobile phone service in France. Journal of Services Marketing, 15(1), 35-48.
Lo, C. K., Yeung, A. C. & Cheng, T. C. E. (2012). The impact of environmental management systems on financial performance in fashion and textiles industries. International Journal of Production Economics, 135(2), 561-567.
Lumpkin, G.T., & Dess, G. G. (2001). Linking two dimensions of entrepreneurial orientation to firm performance: The moderating role of environment and industry life cycle. Journal of Business Venturing, 16(5), 429-451.
Melnyk, S. A., Sroufe, R. P., & Calantone, R. (2003). Assessing the impact of environmental management systems on corporate and environmental performance. Journal of Operations Management, 21(3), 329-351.
Menguc, B., & Ozanne, L. K. (2005). Challenges of the “green imperative”: A natural resource-based approach to the environmental orientation business performance relationship. Journal of Business Research, 58(4), 430-438.
Namazi, M., Rezaei, G., & Momtazian, A. (2015). Product market competition and accounting information quality. Journal of Accounting Advances, 6(2), 131-166. (In Persian)
Ormazabal, M., Sarriegi, J. M., & Viles, E. (2017). Environmental management maturity model for industrial companies. Management of Environmental Quality: An International Journal, 28(5), 632-650.
Panayides, P. M., & Lun, V. Y. H. (2009). The impact of trust on innovativeness and supply chain performance. International Journal of Production Economics, 122(1), 35-46.
Rousseau, D. M., & Fried, Y. (2001). Location, location, location: Contextualizing organizational research. Journal of Organizational Behavior, 22(1), 1-13.
Russo, I., Confente, I., Gligor, D. M., & Cobelli, N. (2017). The combined effect of product returns experience and switching costs on B2B customer re-purchase intent. Journal of Business & Industrial Marketing, 32(5), 664-676.
Seiders, K., Voss, G. B., Grewal, D., & Godfrey, A. L. (2005). Do satisfied customers buy more? Examining moderating influences in a retailing context. Journal of Marketing Research, 69(4), 26-43.
Sirmon, D. G., Hitt, M. A., & Ireland, R. D. (2007). Managing firm resources in dynamic environments to create value: Looking inside the black box. Academy of Management Review, 32(1), 273-292.
Sroufe, R. (2003). Effects of environmental management Sroufe, R. (2003). Effects of environmental management systems on environmental management practices and operations, Production and Operations Management, 12(3), 416-431.
Tsai, K. H., & Yang, S. Y. (2013). Firm innovativeness and business performance: The joint moderating effects of market turbulence and competition. Industrial Marketing Management, 42(8), 1279-1294.
Vachon, S., & Klassen, R. D. (2008). Environmental management and manufacturing performance: The role of collaboration in the supply chain. International Journal of Production Economics, 111(2), 299-315.
Wong, C. W., Lai, K. H., Shang, K. C., Lu, C. S., & Leung, T. K. P. (2012). Green operations and the moderating role of environmental management capability of suppliers on manufacturing firm performance. International Journal of Production Economics, 140(1), 283-294.
Yang, C. L., Lin, S. P., Chan, Y. H., & Sheu, C. (2010). Mediated effect of environmental management on manufacturing competitiveness: An empirical study. International Journal of Production Economics, 123(1), 210-220.
Yee, R. W. Y., Yeung, A. C. L., & Cheng, T. C. E. (2010). An empirical study of employee loyalty, service quality and firm performance in the service industry. International Journal of Production Economics, 124(1), 109-120.
Zhu, Q., Sarkis, J. (2007). The moderating effects of institutional pressures on emergent green supply chain practices and performance. International Journal of Production Research, 45 (18-19), 4