Corporate Environmental Performance And Financial Performance

Recently,economic leverage is increasingly applied in environmental policies in China.Strengthening economic supervision over the environmental behavior of enterprises will not only dramatically increase regulation compliance and decrease financial risk,but also obtain both economic and environmental benefit at the same time.Hence research on relationship between corporate environmental performance and financial performance will be of great significance for policy making.However,present foreign and domestic researches suggest that no agreement has yet been reached on whether corporate environmental performance has an impact on corporate financial performance.Besides,present researches mostly select one or several variate for measuring corporate environmental performance,which actually consists of multiple factors.This lead to the main difficulty and the innovative point in the following research.This paper focuses on exploring how corporate environmental performance has an influence on corporate financial performance.A corporate environmental performance(CEP)index system is designed to quantitate corporate environmental performance,and then econometric models are built up for simulation.The corporate environmental performance(CEP)index system is a two-tier index system.All tier 2nd indicators are treated as industry-standardized score,and the final CEP index is acquired through dynamic weighted aggregation.Panel data used in study is from CSMAR Database,IPE Database and Environmental Statistics Database,146 firm samples from 2013 to 2015.CEP scores of all samples fluctuate slightly through 3 years and reveal approximate normal distribution.The CEP index is applied in economic models for measuring firm environmental performance.Firm financial performance is divided into three dimensions,(1)accounting performance measured by operating income and return on assets(ROA),securities market performance measured by Tobin Q,(2)price-earnings ratio and aggregate market value and(3)total intangible assets.To deal with endogeneity in model,we used first-lagged CEP index as explaining variable and built up fixed effect model for controlling individual fixed effects.Instrumental variable(IV)and 2SLS method are also used for endogeneity control.The intensity of environmental regulation measured by regional overall emission intensity is selected as instrumental variable.Moreover,other variables which could probably effect corporate financial performance,including first-lagged Hirshmann-Herfindahl index,firm size,ownership,industry,province,listing exchange and year dummy variables.Model simulation leads to all negative results while instrumental variable and all control variables are introduced,which suggests that corporate environmental performance shows no significant impact on corporate financial performance.Above conclusions suggest that strict environmental regulation won't result in unescapable economic constraints.That means the negative effect of environmental governance on economic development should not be over considered in corporate environmental economic policy making.Besides,combining economic leverage and environmental industrial policy could be effective based on strong connection between corporate financial performance and corporate environmental performance created by regulation and policy design.Such as green-credit policy,green bonds and pollution compulsory liability insurance.An authorized,widely admitted corporate environmental performance evaluation index system is urgently needed for environmental consultancy,institutional investor and firm itself in practice.