| As a result of an increasing reliance on flexible incentive-based environmental policies, firms are increasingly addressing environmental concerns in a more aggressive manner that moves away from traditional compliance-driven management approaches. This study develops a behavioral model of firm decision making to obtain econometrically testable hypothesis about the factors influencing the comprehensiveness of a firm's environmental management system and the implications for their environmental and economic performance. Results of count data analysis partially support hypotheses arising from the theoretical model and show that economic factors such as the threat of environmental liabilities and penalties for regulatory non-compliance, and market pressures play a role in inducing a higher quality of environmental management among a sample of S&P 500 firms. Using an instrumental variable approach, it is found that a higher count of management practices adopted does not lead to any significant reductions in toxic emission levels. Panel data analysis reveals that over time, however, the incentives created by specific types of management practices to reduce pollution generation become more evident. Similarly, the extent to which increased profitability is realized appears to rely on the design of the management strategy implemented. These results suggest that the effectiveness of environmental management systems depends on how external forces create incentives to influence environmental behavior, and on specific firm attributes that determine the extent to which the firm adopts specific changes in management strategies that result in pollution reductions and that generate competitive advantages. |
