A Research Of The Effect Of The Internalization Of Environment Costs On Corporate's Financial Performance

At this stage,many issues still exist in the process of modernization in China.One of them is the huge conflict between economic development and environmental protection.With the increasingly severe environmental situation,more people pay attention to environmental protection,accordingly,higher demands on enterprises for undertaking environmental responsibilities generated.The effect of this phenomenon is profound.According to the current economic theory,for enterprises,shifting the exterior problems to inside is one of the most important measures leading to solve the problem of environmental pollution,by which they can achieve the internalization of environment costs.Enterprises paid much attention to control the operational costs:they thought the internalization of environment costs will damage financial performance of company.Therefore,they are lacking of initiative in undertaking their environmental responsibilities.Existing research also lacks clear research conclusions.This paper centered on the question of the relationship between environment costs and financial performance,including:(1)Whether the increase of internalization of environment costs'level will drive down companies' financial performance;(2)The internalization of environment costs on corporate's financial performance is a short-term effect or a long-term effect;(3)External institutional environment is a powerful tool for enterprises to undertake environmental responsibilities,whether the government regulation can reinforce the effect of the internalization of environment costs on corporate's financial performance.This paper focus on heavy pollution industry in China,relies on theories of the internalization of environment costs,using the level of internalization of environmental costs as explanatory variables according to the environmental information disclosed,using ROA and ROE as explained variables.Paper establishes regression models,which describes the influence on financial performance caused by the internalization of environment costs.Results of this paper indicate:(1)companies who have higher level of internalization of environment costs get worse financial performance;(2)The internalization of environment costs on corporate's financial performance is a short-term effect;(3)Government regulation can reinforce the negative effect of the internalization of environment costs on corporate's financial performance.This is to say,it has obvious regulating effect.Results of this paper is expected to alleviate corporate's repulsion to undertake environmental responsibilities.This paper also revealed the special role of government regulation.Through the enhance of regulation,enterprises is expected to arrange environmental investment properly and undertake social responsibilities,promoting the harmony between enterprises and society.