Dealing with Cultural Differences in Environmental Management

Dealing with Cultural Differences in Environmental Management: Exploring the CEP-CFP Relationship

Vincenzo Vastola ^a, Angeloantonio Russo ^a,⁎, Clodia Vurro ^b

Abstract

Despite numerous attempts to agree on the nature of the relationship between environmental and financial performance, controversial results still exist in the literature. This discrepancy suggests that we must enlarge the spectrum of analysis to understand when it pays to be green. Theway in which society takes a stance on environmental responsibility is deeply bounded to the cultural lenses through which it sets its priorities. A cultural perspective can help explain the capacity for social phenomena to shape behaviour.We consider how the contextual environment of culture, thus far neglected, might moderate the corporate environmental performance–corporate financial performance relationship and thus influence firms’ capacity to offset the costs of environmental management. By using a sample of 954 companies, we contribute to the long-running debate, showing how the effect of cultural influence can overcome the hurdle of contrasting results and offer novel insights for both

academia and practitioners.

Keywords: Corporate environmental performance; Corporate financial performance; Cultural dimensions;

1.                  Introduction

Concerns about the environment and its protection have risen together with the extensive damage that global warming, pollution, and deforestation have caused to the planet. In this context, firms have taken more responsibility towards environmental issues (Egri and Ralston, 2008). This is not just a matter of squaring the circle or reconciling the oxymoron of sustainability and development (Robinson, 2004; Redclift, 2005); rather new profitable opportunities have resulted from the rise in corporate environmental responsibility (Hart, 1995; Shrivastava, 1995; Starik and Rands, 1995). Doing good for the environment can then be good for the firm by means of fostering efficiency and innovation as well as improving brand image and reputation among consumers (Esty and Porter, 1998; Hart, 1995; Young, 1991; Perrini et al., 2011; Porter and Van der Linde, 1995).

Many scholars have focused on investigating the relationship between corporate environmental performance (CEP) and corporate financial performance (CFP) (Bansal and Gao, 2006; Berchicci and King, 2007). Nevertheless, inconclusive empirical findings have been presented (Christmann, 2000; Cordeiro and Sarkis, 1997; Endrikat et al., 2014; Trumpp and Guenther, 2015). A deeper understanding needs to go further than the simplistic assumption of a direct relationship, thus calling for a ‘third variable’ to be considered (Wagner, 2011). Indeed, one of the reasons for the contradictory results may be that this relationship depends on such aspects as the cultural setting or normative regime in which firms operate (Schaltegger and Synnestvedt, 2002). As managing the environment is a cultural issue (Boyle, 1998), the way in which society deals with it relies on its cultural shape. Committing to sustainability by companies is a consequence of interpreting and responding to environmental matters through different cultural lenses. Although culture has been considered in respect to corporate sustainability (CS), no previous work has directly asserted its effect in influencing the relationship between environmental management and a firm’s financial outcomes. We therefore investigate how different cultural characteristics, namely uncertainty avoidance, masculinity, and long-term orientation (Hofstede et al., 2010), influence the above-mentioned CEP–CFP relationship. To test the hypotheses, a sample o woldwide firms from the S&P 2013 1,200 list is used. The final sample consists of 954 worldwide companies, with observations from 2002 to 2013. The results support the idea that different cultural characteristics affect the CEP–CFP relationship, both in the short- and in the medium-term. Moreover, this study provides a new contribution to the complex topic of ‘when it pays being green’ (Reinhardt, 1999), which is capable of moderately generalist and often contrasting outcomes (Dixon-Fowler et al., 2013; King and Lenox, 2001; Schaltegger and Synnestvedt, 2002), by looking at the conditions that make it more or less profitable to be green. The results discussed herein provide implications for both academia and practitioners interested in the CEP–CFP relationship.

2. Literature Review and Hypotheses Development

2.1. CEP–CFP Relationship and the Effect of Cultural Dimensions

Although the relationship between CEP and CFP has been investigated, the results from this research still lack unanimity (Guenther and Hoppe, 2014; Horváthová, 2010). For many years, CEP and CFP have been two opposite sides of the same coin, since the idea of reducing pollution – on a voluntary basis or through compliance to regulations – is opposed to the assumption of a consequent loss of competitiveness through the distraction of resources and increasing marginal costs (Friedman, 1970; Walley and Whitehead, 1994). By contrast, moving away from the conception of environmental management as philanthropy, scholars now assert that prevention strategies could rather help eliminate the inefficiencies embodied in pollution and the non-recoverable cost of waste, while promoting innovation and capabilities (Porter and Van der Linde, 1995; Shrivastava, 1995). Both schools of thought have found support in empirical research, which could profit from different approaches to the operationalization of both CEP (e.g. various pollution measures, environmental practices and standards) and CFP (e.g. profitability measures or market valuation). Table 1 shows examples of sundry approaches to the operationalization of CEP and CFP.

Table 1

Different operationalization of CEP-CFP.

Article	CEP	CFP
Christmann (2000)	Best practices in environmental management	Cost advantages
Dowell et al. (2000)	Adherence to higher global environmental standards	Market value
Hart and Ahuja (1996)	Efforts to prevent pollution and reduce emissions	Return on sales, return on assets, return on equity
Hassel et al. (2005)	Third party evaluation index of environmental performance based on several criteria	Market value
Jaggi and Freedman (1992)	Pollution report filled with EPA; they compared inflow of water pollutants with outflow	Net income, return on equity, return on assets, cash flows/equity, cash flow/assets
Klassen and McLaughlin (1996)	Environmental management initiatives (measured through third party awards) and crisis	Market reaction
Konar and Cohen (2001)	Two measures: TRI 88, the aggregate pounds of toxic chemicals emitted per dollar revenue of the firm; and LAW89, the number of environmental lawsuits pending against the firm in 1989	Tobin's q (market performance)
Russo and Fouts (1997)	Scores based on a number of criteria, such as compliance records, expenditures, and other initiatives used to meet new demands, to reduce waste reduction, and to support environmental protection organizations	Return on assets
Sarkis and Cordeiro (2001)	Two measures: pollution prevention, expressed as the ratio between two years' total waste, and end-of-pipe treatments measured as the ratio between same period of observation end-of-pipe treatments and total waste	Return on sales

Although research on CS and environmental management is growing (Matten and Moon, 2008), there is still a need to investigate the different factors that may influence not only the spread of CS implementation (Campbell, 2007), but also the relationship between its implementation and firms' results (Schaltegger and Synnestvedt, 2002). Recently, scholars have started to take into consideration contingencies with respect to environmental proactivity (Primc and Čater, 2015) as affecting the financial returns of embracing commitment to environmental protection (e.g. trends in economic development, increasing regulation, management approaches, eco-effectiveness, strategies and organizational designs; Delmas et al., 2015; Muhammad et al., 2015; Pogutz and Russo, 2009; Rivera-Torres et al., 2015). Indeed, owing to latent endogeneity issues (Garcia-Castro et al., 2010; Siegel, 2009), ‘given the variation found in the empirical literature on the link between the environmental/social performance and economic performance, there is some evidence that a “third variable” might exist’ (Wagner, 2011, p. 943). In this respect, contextual features such as the cultural environment in which the firm operates significantly shape value-leading behaviour (Hofstede, 1980) as internal and external meaning attribution and interpretation (Peterson and Anand, 2004). In particular, the ‘interpretation of what the domain of corporate social responsibility is and its implementation may be different in each country due to cultural difference’ (Ho et al., 2012, p. 423). Indeed, as the environment itself is a cultural issue (Boyle, 1998), environmentally responsible behaviours can reasonably change across culturally different contexts such as countries, local areas, and the competitive environment (Park et al., 2007). Culture, the collective programming of the mind (Hofstede, 1980), has received concrete and measurable representation along different dimensions that characterize and distinguish groups from others. From a national perspective, the dimensions described by Hofstede et al. (2010) catch tendencies in value-driving preferences and conducts. Then, when culture, also defined as the system of shared values when specifically related to organizational culture (Schein, 1985), profoundly shapes both meaning attribution and phenomena interpretation (Peterson and Anand, 2004), it is crucial to explain both economic and political culture (Harrison and Huntington, 2000). This may be even more relevant to CS, since its necessary accordance with social values (Garriga and Melé, 2004) as its ‘implicit compliance with assumed societal norms and expectations with explicit participation in public processes of political will formation’ (Scherer and Palazzo, 2004, p. 1108) guides the way in which companies behave in society (Perrini et al., 2007; Russo and Tencati, 2009).

Some empirical studies have started to take into consideration culture in relation to CS (Babiak and Trendafilova, 2011; Burton et al., 2000; Linnenluecke and Griffiths, 2010; Linnenluecke et al., 2009). Scholars have particularly focused on corporate social disclosure (Archambault and Archambault, 2003; Haniffa and Cooke, 2005; Orij, 2010), while others have assessed how cultural dynamics influence consumer perceptions of CS (Kim and Kim, 2009; Ramasamy and Yeung, 2008; Williams and Zinkin, 2008). Finally, a few studies have investigated the direct effect of cultural characteristics on CS (Ho et al., 2012; Ringov and Zollo, 2007). Nevertheless, whether the circumstantial environment of culture influences the CEP–CFP relationship, the latter remains under-investigated, potentially mitigating the extent of more generalist outcomes. In this regard, the cultural characteristics from Hofstede's model (Hofstede et al., 2010) – uncertainty avoidance, masculinity, and long-term orientation – have been selected as factors capable of explaining the ambiguous CEP–CFP relationship. We then present their relevance over the CEP–CFP relationship, from which hypotheses arise, followed by considerations about the choices of the non-inclusion of the remaining dimensions: power distance, indulgence, and individualism.

First, uncertainty avoidance stands for society's tolerance for uncertainty and ambiguity. It measures the extent to which members of a culture feel comfortable in new, surprising situations. A high degree of uncertainty avoidance results in strict laws and rules and absolute beliefs, thus reducing the naturally higher levels of anxiety in the population. Given the high costs associated with investment in environmental protection and its preventive nature and mixed signals to action (Hulme, 2009), accounting for differences in dealing with uncertainty is advisable. Ringov and Zollo (2007) suggest that because of innovation inertia owing to high routine orientation, uncertainty avoidance is accompanied with lower levels of social and environmental performance. Moreover, higher uncertainty avoidance can result in a lower degree of sensibility to ethical problems and, accordingly, to less focus on nonpurely economic responsibilities (Burton et al., 2000). Still, uncertainty avoidance can mean risk avoidance and thus a lower engagement of firms in society and less propensity to CS (Orij, 2010). In competitive environments, innovation and technological progress, although accompanied by risk, may be crucial factors leading to better CFP. Then, a cultural context denoted by reticence to risk could turn into a rough and partial commitment to innovation, as in the case of environmental management, thereby hampering achieving better financial results. Furthermore, less tolerance to novelty can dull citizens' empowerment to raise debate on environmental sustainability (Husted, 2005) as well as reduce consumers' propensity to appraise corporate environmental activism. Preventing organizations from committing to sustainability can lead them to seek incremental changes rather than significant investment in climate change (Slawinski et al., 2015), weakening the positive effects of their action towards the reduction of inefficiencies embodied in pollution and the non-recoverable cost of waste (Hart and Ahuja, 1996; Porter and Van der Linde, 1995). Similarly, the lack of stakeholder and customer support towards corporate environmental protection can diminish the rewards of the related differentiation advantages (Klassen and McLaughlin, 1996; McWilliams and Siegel, 2000). Therefore, we expect the cultural environment denoted by uncertainty avoidance to reveal a lower willingness to pursue and reward definitive commitment to environmentally friendly strategies, which decreases the probability of achieving a positive financial performance.

Hypothesis 1. Uncertainty avoidance has a negative influence on the relationship between CEP and CFP.

The second cultural characteristic that may affect the CEP–CFP relation is masculinity. Masculine cultures use the ‘biological existence of two sexes to define very different social roles for men and women’ (Hofstede, 1984, p. 392). In particular, masculinity denotes male assertiveness, toughness, focus on competition, and material reward for success. By contrast, feminine countries have overlapping gender roles and a society that looks for modesty, high quality of life, solidarity, and mutual aid. Greed, ambition, and the fulfilment of personal achievements are often drivers of unethical behaviours (Ho et al., 2012). Superior performance, in terms of profits or economic growth at a macro level, must be accomplished at any cost, and thus ethical issues and CS orientation are higher in countries where a feminine ethical attitude is widespread (Burton et al., 2000; Peng et al., 2012; Ringov and Zollo, 2007). Since masculine countries prefer economic growth to environmental safeguarding (Hofstede et al., 2010), attention to the topics of ecology (Husted, 2005) is lower in countries with higher scores of masculinity. Then, higher masculinity can translate into endorsing a stricter market logic, whose classical shareholder primacy model is ill-equipped to deliver advisable social outcomes (Banerjee, 2014). Moreover, a market outlook, typically used to oppose action on climate change, will hinder drastic environmental protection initiatives as it is ‘seen to be challenging the main sources of economic growth and putting at risk the capacity of firms to create profits and shareholder value’ (Slawinski et al., 2015, p. 16). Less sensitivity to issues beyond material rewards is then likely to restrain subjects in charge of the application and adherence to ‘responsible’ practices. Similarly, consumers and the community may be more or less willing to prize a firm's efforts to enhance environmental objectives depending on the degree to which they reflect values related to well-being and safeguarding life quality. Then, in the following hypothesis we assume the lack of a definite commitment to sustainability by corporations less sensitized to environmental protection shortens the positive payback of environmental management.

Hypothesis 2. Masculinity has a negative influence on the relationship between CEP and CFP.

Finally, long-term orientation relies on the argument that every society has to maintain links with its own past while dealing with the challenges of the present and the future (Hofstede et al., 2010). Longterm orientation can be seen as ‘the tendency to prioritize the longrange implications and impact of decisions and actions that come to fruition after an extended time period’ (Lumpkin et al., 2010, p. 245). Short-term-oriented societies are less inclined to make societal change, while long-term ones prefer to promote pragmatic virtues such as perseverance and thrift, focus on future rewards, and a high capacity to adapt to the new needs presented by upcoming circumstances. Given that environmental protection aims to safeguard ‘the ability of future generations to meet their own needs’ (WCED, 1987, p. 43), the propensity to prioritize long-term goals is crucial. When focused on a shortterm horizon, managers are more likely to adopt narrower actions consisting of fewer long-term substantial initiatives deemed to protect the environment (Slawinski et al., 2015). As opposed to uncertainty avoidance and masculinity, long-term orientation acts as a prod to a higher propensity to innovate (Everdingen and Waarts, 2003). In these terms, a proactive dynamism towards innovation is at the core of profitably greening organizations (McWilliams and Siegel, 2000; Porter and Van der Linde, 1995; Porter, 1991). Moreover, society's sensitiveness to long-term challenges is likely to promote and reward companies' engagement in CS (Kim and Kim, 2009) by translating their preferences in values, expressed by corporate actions, into preferences in consumption (Klassen and McLaughlin, 1996). Then, we expect cultural contexts characterized by long-term orientation, which are more capable of aligning society and companies with environmental concerns, support solid commitment to CS with greater chances of gaining positive financial outcomes.

Hypothesis 3. Long-term orientation has a positive influence on the relationship between CEP and CFP.

Additional cultural dimensions have not been included in this study because of several considerations. First, power distance, meaning the degree to which people accept hierarchical order across society, analogously to higher masculinity scores, is linked to the acceptance of unethical behaviours (Cohen et al., 1996; Ho et al., 2012). Second, individualism versus collectivism is associated with moral issues like masculinity (Ho et al., 2012). In addition to these similarities, masculinity/femininity adds a peculiar characteristic that is more aligned with a strategic process of responsibility embodying, as it can be considered to be firms' efforts to reduce their ecological footprints, which means exceeding the ‘do no harm’ case by adding ‘create and protect value’ (Ahen and Zettinig, 2015). Then, a mentality rated to help, particularly to what is weak and threatened, can mean not only the abstention to commit unethical deeds, but rather a proactive push to actions directed to wealth creation and preservation, which can indeed follow into environmental safeguarding. Lastly, indulgence versus restraint was not included because its measure of society's propensity to allow the gratification of human drivers relating to enjoying life and having fun was not considered to be coherent with our analysis.

3. Methodology

3.1. Sample

To test the hypotheses, we used a dataset consisting of 954 companies from the 2013 S&P 1200. After having eliminated firms belonging to those industries typically considered in the literature to be low-polluting (i.e. financial services, insurance and banking), the dataset comprised companies operating in nine industries (i.e. basic materials, consumer goods, consumer services, health care, industrials, oil & gas, technology, telecommunications, and utilities) based on the Industry Classification Benchmark. We observed a time span of 12 years, namely from 2002 to 2013. Companies belonged to 32 countries, representing the five geographical areas of Europe, North America, South America, Asia, and Oceania. Given the particular outlook of our study, national belonging was assessed by considering the country in which headquarters is located at incorporation. Table 2 describes the sample.

Table 2. Sample description.

	Europe		North America		South America		Asia		Ocenia		Total
	n	%	n	%	n	%	n	%	n	%	n	%
Basic materials	35	3.67	37	3.88	6	0.63	20	2.10	7	0.73	105	11.01
Consumer goods	44	4.61	65	6.81	1	0.10	36	3.77	1	0.10	147	15.41
Consumer services	42	4.40	82	8.60	6	0.63	19	1.99	3	0.31	152	15.93
Health care	20	2.10	46	4.82	–	–	10	1.05	3	0.31	79	8.28
Industrials	71	7.44	78	8.18	4	0.42	46	4.82	8	0.84	207	21.70
Oil & gas	19	1.99	54	5.66	3	0.31	6	0.63	5	0.52	87	9.12
Technology	12	1.26	53	5.56	–	–	12	1.26	–	–	77	8.07
Telecommunications	14	1.47	8	0.84	1	0.10	6	0.63	1	0.10	30	3.14
Utilities	21	2.20	33	3.46	5	0.52	9	0.94	2	0.21	70	7.34
Tot	278	29.14	456	47.80	26	2.73	164	17.19	30	3.14	954	100
N = 11,448.

As Table 2 shows, the majority of the sample is represented by companies from North America (i.e. United States, Canada, and Bermuda), followed by the important presence of European countries representing almost one-third of the sample (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom). Asia, Oceania, and South America represent nearly 25%. The largest industry is industrials, with almost 22%, while the smallest is the telecommunications sector.

3.1.1. Dependent Variables

3.1.1.1. Financial Performance.

We adopt different measures of financial performance to gain a broader and more detailed picture of the moderating effect of culture on the CEP–CFP relationship. By looking at the capacity of firms to produce income efficiently using assets, thus considering the shareholder return perspective (Busch and Hoffmann, 2011), we then employ return on assets (ROA) (Clarkson et al., 2011; Russo and Fouts, 1997) and return on equity (ROE) (Hart and Ahuja, 1996; Wagner et al., 2002). Moreover, to capture the effects on market valuation, we use Tobin's q. From among the several definitions and computational approaches, such as relying on industry-adjusted q (Gompers et al., 2001) or semi-log specifications (Hirsch and Seaks, 1993), we refer to Tobin's q as the ratio between the sum of equity, debt, and preferred stock over the replacement value of property, plant, and equipment and short-term assets, following Dowell et al. (2000). All our dependent variables are measured at t + 1 and t + 3 to test different time perspectives. Data are retrieved from the Thomson Reuters Database.

3.1.2. Predictor

3.1.2.1. Environmental performance.

Following the literature on the CEP– CFP relationship, we consider our main predictor, environmental performance, in terms of emission reduction (Albertini, 2013). We adopt a more comprehensive measure that considers a wide range of polluting sources, going beyond the sole consideration of gases. Our predictor considers air emissions (i.e. GHG, F-gases, NOx, SOx, and ozonedepleting substances), waste and hazardous waste, water discharges, and spills and impacts on biodiversity. Precisely, CEP is expressed as the capacity of companies to reduce their pollution impact, measured as a percentage change compared with the previous year (Hart and Ahuja, 1996). Values are then expressed in units (e.g. 100 equals a 100% reduction with respect to the previous year's emissions).

Information is gathered from different sources such as sustainability and annual reports, company websites, NGOs, and news providers, collected from the Thomson Reuters Asset 4 ESG database. The validity of the Asset 4 database is supported by the literature (Semenova and Hassel, 2014). As a robustness check, we run the same analyses using the absolute value of GHG emissions for each firm in the sample. The results do not change, providing additional evidence of the significance of our analysis.

3.1.3. Moderating Variables

3.1.3.1. Cultural Dimensions.

We select cultural dimensions as operationalized by Hofstede et al. (2010). Owing to the scope of this study, masculinity, uncertainty avoidance, and long-term orientation are included. Data are therefore collected from Hofstede's official website.

3.1.4. Control Variables

Several control variables are included in the regression models. We assess the size effect by using the logarithm of total assets as a proxy (Delmas et al., 2015). R&D efforts by firms are also included as R&D expenditure expressed as its natural logarithm (Marti et al., 2015), while we control for firm profitability by means of the EBITDA margin (EBITDA over total sales), which is more useful than operating margin as it excludes non-cash items such as interest and taxes as well as depreciation and amortization. Furthermore, we assess the level of debt by means of leverage (total debt on firm's assets) (King and Lenox, 2001, 2002). Data are obtained from the Thomson Reuters Database. Given the objectives of this study, we control for other institutional pillars (e.g. regulative and normative ones) (Scott, 2001), by using the regulatory quality and government effectiveness indicators from the World Governance Indicators to capture the perceptions of policies and regulation capacity to sustain firm development and government quality in credibility and civil service, respectively; data are gathered from the World Bank Database.

Further, because of the longitudinal nature of the study, we assess a time effect. Therefore, dummy variables are created for each year from 2002 to 2013. Moreover, since the companies in the sample belonged to 32 countries, five dummy variables grouping geographical areas (Asia, Europe, North America, South America, and Oceania) are used to capture a possible geographical effect. Moreover, to control for features resembling the macro scenario of these geographical areas, we include an additional control (the interaction of geographical and time effects). For the industry effect, dummy variables relative to the nine sectors (i.e. basic materials, consumer goods, consumer services, financials, health care, industrials, oil & gas, technology, telecommunications, and utilities) are introduced. In this regard, Oceania and the utilities sector are considered to be the baseline value.

4. Results

4.1. Analysis and Descriptive Statistics

Owing to the possibility of the simultaneous correlation between the dependent variables and predictors, all models included a one-year lag to avoid problems of endogeneity. Furthermore, to shed light upon the validity of the hypotheses in the medium-term, each regression was also computed by considering the dependent variable at t + 3. By using panel data, we performed the Hausman test for each model, which strongly suggested the use of random effects (p N 0.05). To overcome the presence of heteroscedasticity, as detected by the Wald (p = 0) and White tests (p b 0.001), and autocorrelation, as signalled by the Durbin-h test (h N 1.96), which is suitable for the case of lagged dependent variables, we tested the presented hypotheses by using a weighted least squares regression. Further, to control for any missing values, we used linear interpolation (Muhammad et al., 2015).

Several different models were provided and the independent variables were treated independently to analyse the effects of the predictors on each of the dependent variables. The variable entry process was equal for all models. First, control variables were included in the equations, and then in the predictors.

Table 3 presents the descriptive statistics and correlations between the variables used in the study. The means of the financial performance indicators show average performance, although the high standard deviations present important differences between the highest and lowest scores. Our predictor of CEP shows similar findings. These results align with the findings of previous studies (Horváthová, 2012; Muhammad et al., 2015). As for the correlations, no relevant association was detected between the dependent and independent variables, while reasonably high values were found for geographical areas and cultural dimensions (e.g. Asia and long-term orientation; 0.64). Nevertheless, we computed an additional analysis to check the variance inflation factors, which were all found to be below the rule-of-thumb cut-off of 10 (Neter et al., 1990).

Table 3

XXX

4.2. Results of the Hypotheses Testing

The first hypothesis relates to the moderating effect of uncertainty avoidance on the relationship between CEP and CFP (i.e. market value, ROA, ROE). Taking into consideration the moderating effect of uncertainty avoidance on market value, as reported in Table 4, significance and support to the hypothesis of a negative moderation is found at both t + 1 (r = −1.91; p b 0.1) and t + 3 (r = −2.61; p b 0.01). As Table 4 shows, the effect of this cultural dimension on ROA resembles the forecasts both for the short-term (r = −5.57) and for the medium-term (r = −2.86) with strong statistical significance (p b 0.01). Then, with regard to ROE, the results reported in Table 5 display a negative moderating effect, which is strongly statistically supported (p b 0.01) at t + 1 (r = −5.02) and t + 3 (r = −5.07).

The second hypothesis foresees a negative moderation for the ‘does it pay to be green’ relationship with masculinity. Table 4 displays its validity for the dependent variable, Tobin's q. Here, the variable representing the interaction between CEP and masculinity exhibits strong significance (p b 0.01) in the short-term (r = −11.76) and medium-term (r = −7.76) over market value. Moving to financial performance, ROA (Table 4) is negatively affected by the interaction variable for the short-term (r = −4.96; p b 0.01) and the medium-term (r = −1.75; p b 0.1). Conversely, Hypothesis 2 does not find support for a moderating effect of masculinity on ROE. Specifically, the results in Table 5 show a positive and highly significant coefficient for t + 3 (r = 7.60; p b 0.01).

Lastly, Hypothesis 3 expects a positive moderation of long-term orientation on the CEP–CFP relationship. The results presented in Tables 4, 5, and 6 show the validity of the hypothesis only for the dependent variables of Tobin's q and ROA, while a negative relationship is found for ROE.

Precisely, looking at market value, support is found in both the short-term (r = 6.14) and the medium-term (r = 5.59) with high statistical significance (p b 0.01). However, no significant findings were obtained when analysing the effect on ROA at t + 3, while the validation came with strong significance (r = 3.24, p b 0.01) at t + 1. Then, ROE is negatively influenced by the interaction between CEP and this cultural dimension, at both t + 1 (r = −2.73, p b 0.01) and t + 3 (r = −6.35, p b 0.01).

The results above are mixed. Looking at market value, improved environmental performance negatively affects Tobin's q in the short-term (r = −16.13, p b 0.01) and medium-term (r = −24.73, p b 0.01). Conversely, the results for financial performance show that ROE is positively influenced by environmental performance at t + 1 (r = 8.59) and t + 3 (r = 4.34) at the maximum significance level (p b 0.01). Still, CEP is characterized by a negative coefficient of ROA in the medium-term (r = −3.46, p b 0.01) and a positive one in the short-term (r = 8.14, p b 0.05). Finally, looking at the size effect on market value, the results suggest a negative and significant relationship for all performance measures, i.e. Tobin's q, ROA, and ROE. In addition, some findings underline the negative effect of debt on both market value and ROA, while a general positive effect of R&D is found for all performance indicators.

5. Discussion

This study addresses the topic of ‘does it pay to be green’. It offers a new contribution by contextualizing the question in a framework capable of overcoming previous contradictory findings by means of more definite commitment then translates into inadequate investment in environmental management (Slawinski et al., 2015), which undermines the reaching of better financial paybacks, as reported by the negative moderation on ROA. Actually, improvements made possible by technology, or by means of internal reorganization, can progressively become more difficult to reach (Hart and Ahuja, 1996), thus demanding more patience, time, and application.

Second, contexts characterized by masculinity are less oriented towards a high quality of life, for which environmental integrity can be regarded as a determinant feature, while materialism is pursued regardless of the possible drawbacks (Hofstede et al., 2010). The negative moderation of market value can be explained as a mismatch between firms' obligation to environmental causes and market callousness to such an issue, which is alternatively capable of providing superior value to firms devoted to environmental protection (McWilliams et al., 2006). Surprisingly, ROE is positively influenced by masculinity. Indeed, when culture influences agency problems and management's perception of the cost of debt finance in each country (Chui et al., 2002), the search for personalist achievements carried out by masculinity may increase the advisability of debt financing (Jensen and Meckling, 1976), as well as its greater aggressiveness also acts as an underlying trigger of leverage recorded by ROE.

Finally, an institutional context distinguished by a high degree of long-term orientation pays high attention to the implications of firms' actions on the future, such as the critical issue of safeguarding the environment and the consequent repercussion on human health (Husted, 2005). Indeed, society is likely to express its estimation to firms that embrace and resemble its own values. Hence, having a good reputation by achieving better environmental protection can mean a higher market valuation for the accomplishment of a ‘greater good’ (Hart, 1995). Moreover, a future-oriented context, because of its capacity to move away from tradition, is best suited to the advancement of innovation (Everdingen and Waarts, 2003). Positive ROA can occur from the persevering efforts to achieve efficiency and thus the consequent fostering of innovativeness in the firm (Porter and Van der Linde, 1995). In contrast to the formulated hypothesis, long-term orientation is found to negatively moderate the relationship with ROE. ROE expresses the perspective of profitability that shareholders pursue in the short-term despite an orientation towards environmental activities (Busch and Hoffmann, 2011); therefore, ROE cannot record the rewards of an environmental strategy doomed to a long-term perspective.

6. Conclusion

This study investigates the moderating role of cultural dimensions on the CEP–CFP relationship. Our research enlarges dialogue on the topic of ‘does it pay to be green’, whose empirical findings are thus far inconclusive (Christmann, 2000; Cordeiro and Sarkis, 1997; Endrikat et al., 2014; Trumpp and Guenther, 2015). Relying on previous studies, we argue that the CEP–CFP relationship depends on the different conditions constituting the setting in which these efforts are taken (Schaltegger and Synnestvedt, 2002). Therefore, our results confirm the advisability of adopting a ‘when’ (Reinhardt, 1999) rather than an ‘if’ perspective when asking about the financial returns of environmental management. This study provides evidence that specific cultural orientations (i.e. uncertainty avoidance, masculinity, and long-term orientation) significantly affect the extent to which the financial performance (i.e. ROA and ROE) as well as market value of firms (i.e. Tobin's q) are influenced by improvements in CEP, in both the short-term and the medium-term. We found that long-term orientation helps companies achieve positive market valuations and financial returns. By contrast, uncertainty avoidance and masculinity were found to prevent companies from reaping the ‘low-hanging fruits’ of environmental management (Hart and Ahuja, 1996). We then contribute to the literature on the CEP–CFP relationship by bringing the debate under a cultural perspective. Our analysis softens the positivistic assumption of a unique relationship between environmental and financial performance. We thus advise practitioners and governments to take into consideration culture when addressing environmental protection strategies and policies.

The limitations of the study can be found in the nature of Hofstede's dimensions since they do not take into consideration intra-national differences and consider cultural peculiarities to remain fixed over time. Although we measure national belonging by considering the locations in which companies were incorporated to better address their cultural heritage, more could be done to capture the effect of mixed cultures, as in the case of multinationals with headquarters in more countries. Furthermore, our analysis does not take into consideration the management tools adopted in environmental strategies (Hörisch et al., 2015). It would be of interest for further research to link the internal perspective on management tools with cultural orientations acting as spur or constraint for a successful sustainability strategy, underlying the conditioning of its financial consequences.

References

2.     Ahen, F., Zettinig, P., 2015. Critical perspectives on strategic CSR: what is sustainable value co-creation orientation? Crit. Perspect. Int. Bus. 11 (1), 92–109.

3.     Albertini, E., 2013. Does environmental management improve financial performance? A meta-analytical review. Organ. Environ. 26 (4), 431–457.

4.     Archambault, J.J., Archambault, M.E., 2003. A multinational test of determinants of corporate disclosure. Int. J. Account. 38 (2), 173–194.

5.     Babiak, K., Trendafilova, S., 2011. CSR and environmental responsibility: motives and pressures to adopt green management practices. Corp. Soc. Responsib. Environ. Manag. 18 (March 2010), 11–24.

6.     Banerjee, S.B., 2014. A critical perspective on corporate social responsibility: towards a global governance framework. Crit. Perspect. Int. Bus. 10 (1), 84–95.

7.     Bansal, P., Gao, J., 2006. Building the future by looking to the past: examining research published on organizations and environment. Organ. Environ. 19 (4), 458–478.

8.     Berchicci, L., King, A., 2007. Postcards from the edge: a review of the business and environment literature. Acad. Manag. Ann. 1 (1), 513–547.

9.     Boyle, J., 1998. Features cultural influences on implementing environmental impact assessment: insights from Thailand, Indonesia, and Malaysia. Environ. Impact Assess. Rev. 18 (2), 95–116.

10.  Burton, B.K., Farh, J., Hegarty, W.H., 2000. A cross-cultural comparison of corporate social responsibility orientation: Hong Kong vs. United States students. Teach. Bus. Ethics (4), 151–167.

11.  Busch, T., Hoffmann, V.H., 2011. How hot is your bottom line? Linking carbon and financial performance. Bus. Soc. 50 (2), 233–265.

12.  Campbell, J.L., 2007. Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility. Acad. Manag. Rev. 32 (3), 946–967.

13.  Christmann, P., 2000. Effects of ‘best practices’ of environmental management on cost advantage: The role of complementary assets. Acad. Manag. J. 43 (4), 663–680.

14.  Chui, A.C., Lloyd, A.E., Kwok, C.C., 2002. The determination of capital structure: is national culture a missing piece to the puzzle? J. Int. Bus. Stud. 33 (1), 99–127.

15.  Clarkson, P.M., Li, Y., Richardson, G.D., Vasvari, F.P., 2011. Does it really pay to be green? Determinants and consequences of proactive environmental strategies. Journal of Accounting and Public Policy 30(2). Elsevier Inc., pp. 122–144.

16.  Cohen, J.R., Pant, L.W., Sharp, D.J., 1996. A methodological note on cross-cultural accounting ethics research. Int. J. Account. 31 (1), 55–66.

17.  Cordeiro, J.J., Sarkis, J., 1997. Environmental proactivism and firm performance: evidence from security analyst earnings forecasts. Bus. Strateg. Environ. 6, 104–114.

18.  Delmas, M.A., Nairn-Birch, N., Lim, J., 2015. Dynamics of environmental and financial performance: the case of greenhouse gas emissions. Organ. Environ. 28 (4), 374–393.

19.  Dixon-Fowler, H.R., Slater, D.J., Johnson, J.L., Ellstrand, A.E., Romi, A.M., 2013. Beyond ‘does it pay to be green?’ A meta-analysis of moderators of the CEP-CFP relationship. J. Bus. Ethics 112 (2), 353–366.

20.  Dowell, G., Hart, S., Yeung, B., 2000. Do corporate global environmental standards create or destroy market value? Manag. Sci. 46 (February), 1059–1074.

21.  Egri, C.P., Ralston, D., 2008. Corporate responsibility: a review of international management research from 1998 to 2007. J. Int. Manag. 14 (4), 319–339.

22.  Endrikat, J., Guenther, E., Hoppe, H., 2014. Making sense of conflicting empirical findings: a meta-analytic review of the relationship between corporate environmental and financial performance. Eur. Manag. J. 32 (5), 735–751.

23.  Esty, D.C., Porter, M.E., 1998. Industrial ecology and competitiveness. J. Ind. Ecol. 2 (1), 35–43.

24.  Everdingen, Y., Waarts, E., 2003. The effect of national culture on the adoption of innovations. Mark. Lett. 14 (3), 217–232.

25.  Friedman, M., 1970. The social responsibility of business is to increase its profits. N. Y. Times Mag. (32) (September 13).

26.  Garcia-Castro, R., Ariño, M., Canela, M., 2010. Does social performance really lead to financial performance? Accounting for endogeneity. J. Bus. Ethics 92 (1), 107–126.

27.  Garriga, E., Melé, D., 2004. Corporate social responsibility theories: mapping the territory social responsibility corporate theories: mapping the territory. J. Bus. Ethics 53 (1/2), 51–71.

28.  Gompers, P.A., Ishii, J.L., Metrick, A., 2001. Corporate governance and equity prices. Nat. Bur. Econ. Res. No. w8449.

29.  Guenther, E.M., Hoppe, H., 2014. Merging limited perspectives. J. Ind. Ecol. 18 (5), 689–707.

30.  Haniffa, R.M., Cooke, T.E., 2005. The impact of culture and governance on corporate social reporting. J. Account. Public Policy 24 (5), 391–430.

31.  Harrison, L.E., Huntington, S.P., 2000. Culture Matters: How Values Shape Human Progress. Basic Books .

32.  Hart, S.L., 1995. A natural-resource-based view of the firm. Acad. Manag. Rev. 20 (4), 986.

33.  Hart, S.L., Ahuja, G., 1996. Does it pay to be green? An empirical examination of the relationship between emission reduction and firm performance. Bus. Strateg. Environ. 5 (1), 30–37.

34.  Hassel, L., Nilsson, H., Nyquist, S., 2005. The value relevance of environmental performance. Eur. Account. Rev. 14 (1), 41–61.

35.  Hirsch, B., Seaks, T.G., 1993. Functional forms in regression models of Tobin's q. Rev. Econ. Stat. 75 (2), 381–385.

36.  Ho, F.N., Wang, H.-M.D., Vitell, S.J., 2012. A global analysis of corporate social performance: the effects of cultural and geographic environments. J. Bus. Ethics 107 (4), 423–433.

37.  Hofstede, G., 1980. Culture and organizations. Int. Stud. Manag. Organ. 10 (4), 15–41.

38.  Hofstede, G., 1984. The cultural relativity of the quality of life concept. Acad. Manag. Rev. 9 (3), 389–398.

39.  Hofstede, G., Hofstede, G.J., Minkov, M., 2010. Cultures and Organizations: Software of the Mind. third ed. McGraw-Hill Professional .

40.  Hörisch, J., Ortas, E., Schaltegger, S., Álvarez, I., 2015. Environmental effects of sustainability management tools: an empirical analysis of large companies. Ecol. Econ. 120, 241–249.

41.  Horváthová, E., 2010. Does environmental performance affect financial performance? A meta-analysis. Ecol. Econ. 70 (1), 52–59.

42.  Horváthová, E., 2012. The impact of environmental performance on firm performance: Short-term costs and long-term benefits? Ecol. Econ. 84, 91–97.

43.  Hulme, M., 2009. Why We Disagree About Climate Change — Understanding Controversy, Inaction and Opportunity. Cambridge University Press, Cambridge .

44.  Husted, B., 2005. Culture and ecology: a cross-national study of the determinants of environmental sustainability. Manag. Int. Rev. 45 (3), 349–371.

45.  Jaggi, B., Freedman, M., 1992. An examination of the impact of pollution performance on economic and market performance: pulp and paper firms. J. Bus. Financ. Account. 19 (5), 697–713.

46.  Jensen, M.C., Meckling, W.H., 1976. Theory of the firm: managerial behavior, agency costs and ownership structure. J. Financ. Econ. 3 (4), 305–360.

47.  Kim, Y., Kim, S.-Y., 2009. The influence of cultural values on perceptions of corporate social responsibility: application of Hofstede's dimensions to Korean public relations practitioners. J. Bus. Ethics 91 (4), 485–500.

48.  King, A.A., Lenox, M.J., 2001. Does it really pay to be green? J. Ind. Ecol. 5 (1), 105–116.

49.  King, A., Lenox, M., 2002. Exploring the locus of profitable pollution reduction. Manag. Sci. 48 (2), 289–299.

50.  Klassen, R.D., McLaughlin, C.P., 1996. The impact of environmental management on firm performance. Manag. Sci. 42 (8), 1199–1214.

51.  Konar, S., Cohen, M., 2001. Does the market value environmental performance? Rev. Econ. Stat. 83 (2), 281–289.

52.  Linnenluecke, M.K., Griffiths, A., 2010. Corporate sustainability and organizational culture. J. World Bus. 45 (4), 357–366.

53.  Linnenluecke, M.K., Russell, S.V., Griffiths, A., 2009. Subcultures and sustainability practices: the impact on understanding corporate sustainability. Bus. Strateg. Environ. 18 (7), 432–452.

54.  Lumpkin, G.T., Brigham, K.H., Moss, T.W., 2010. Long-term orientation: implications for the entrepreneurial orientation and performance of family businesses. Entrep. Reg. Dev. 22 (3-4), 241–264.

55.  Marti, C.P., Rovira-Val, M.R., Drescher, L.G., 2015. Are firms that contribute to sustainable development better financially? Corp. Soc. Responsib. Environ. Manag. 22 (5), 305–319.

56.  Matten, D., Moon, J., 2008. ‘Implicit’ and ‘explicit’ CSR: a conceptual framework for a comparative understanding of corporate social responsibility. Acad. Manag. Rev. 33 (2), 404–424.

57.  McWilliams, A., Siegel, D., 2000. Corporate social responsibility and financial performance: correlation or misspecification? Strateg. Manag. J. 21 (5), 603–609.

58.  McWilliams, A., Siegel, D.S., Wright, P.M., 2006. Guest editors' introduction corporate social responsibility: strategic implications. J. Manag. Stud. 43 (January), 1–18.

59.  Muhammad, N., Scrimgeour, F., Reddy, K., Abidin, S., 2015. The relationship between environmental performance and financial performance in periods of growth and contraction: evidence from Australian publicly listed companies. J. Clean. Prod. 102, 324–332.

60.  Neter, J., Wasserman, W., Kutner, M.H., 1990. Applied Linear Statistical Models. third ed. Irwin, Homewood, IL .

61.  Orij, R., 2010. Corporate social disclosures in the context of national cultures and stakeholder theory. Account. Audit. Account. J. 23 (7), 868–889.

62.  Park, H., Russell, C., Lee, J., 2007. National culture and environmental sustainability: a cross-national analysis. J. Econ. Financ. 31 (1), 104–121.

63.  Peng, Y., Dashdeleg, A., Chih, H., 2012. Does national culture influence firm's CSR engagement: a cross country study. Int. Proc. Econ. Dev. Res. 58, 40–44.

64.  Perrini, F., Russo, A., Tencati, A., 2007. CSR Strategies of SMEs and large firms. Evidence from Italy. J. Bus. Ethics 74 (3), 285–300.

65.  Perrini, F., Russo, A., Tencati, A., Vurro, C., 2011. Deconstructing the relationship between corporate social and financial performance. J. Bus. Ethics 102, 59–76 (Supplement 1). Peterson, R.A., Anand, N., 2004. The production of culture perspective. Annu. Rev. Sociol. 30 (May), 311–334.

66.  Pogutz, S., Russo, A., 2009. Eco-efficiency vs eco-effectiveness: exploring the link between GHG emissions and firm performance. Acad. Manag. Proc. 1, 1–6.

67.  Porter, M.E., 1991. Green competitiveness. Sci. Am. 264 (4), 1–2.

68.  Porter, M.E., Van der Linde, C., 1995. Toward a new conception of the environment-competitiveness relationship. J. Econ. Perspect. 9 (4), 97–118.

69.  Primc, K., Čater, T., 2015. Environmental proactivity and firm performance: a fuzzy-set analysis. Manag. Decis. 53 (3), 648–667.

70.  Ramasamy, B., Yeung, M., 2008. Chinese consumers' perception of corporate social responsibility (CSR). J. Bus. Ethics 88 (S1), 119–132.

71.  Redclift, M., 2005. Sustainable development (1987–2005): an oxymoron comes of age. Sustain. Dev. 227 (July), 212–227.

72.  Reinhardt, F., 1999. Market failure and the environmental policies of firms. J. Ind. Ecol. 3 (1), 9–21.

73.  Ringov, D., Zollo, M., 2007. The impact of national culture on corporate social performance. Corp. Gov. Int. J. Bus. Soc. 7 (4), 476–485.

74.  Rivera-Torres, P., Garcés-Ayerbe, C., Scarpellini, S., Valero-Gil, J., 2015. Pro-environmental change and short-to mid-term economic performance: the mediating effect of organisational design change. Organ. Environ. 28 (3), 307–327.

75.  Robinson, J., 2004. Squaring the circle? Some thoughts on the idea of sustainable development. Ecol. Econ. 48 (4), 369–384.

76.  Russo, M.V., Fouts, P.A., 1997. A resource-based perspective on corporate environmental performance and profitability. Acad. Manag. J. 40 (3), 534–559.

77.  Russo, A., Tencati, A., 2009. Formal vs informal CSR strategies. Evidence from Italian micro, small, medium-sized, and large firms. J. Bus. Ethics 85 (2), 339–353.

78.  Sarkis, J., Cordeiro, J.J., 2001. An empirical evaluation of environmental efficiencies and firm performance: pollution prevention versus end-of-pipe practice. Eur. J. Oper. Res. 135 (1), 102–113.

79.  Schaltegger, S., Synnestvedt, T., 2002. The link between ‘green’ and economic success: environmental management as the crucial trigger between environmental and economic performance. J. Environ. Manag. 65 (4), 339–346.

80.  Schein, E.H., 1985. Organizational Culture and Leadership. Jossey-Bass, San Francisco .

81.  Scherer, A.G., Palazzo, G., 2004. Toward a political conception of corporate responsibility: business and society seen from a Habermasian perspective. Acad. Manag. Rev. 32 (4), 1096–1120.

82.  Scott, W.R., 2001. Institutions and Organizations. Sage Publications, Thousand Oaks, CA .

83.  Semenova, N., Hassel, L.G., 2014. On the validity of environmental performance metrics. J. Bus. Ethics 132 (August 2014), 1–10.

84.  Shrivastava, P., 1995. Environmental technologies and competitive advantage. Strateg. Manag. J. 16, 183–200.

85.  Siegel, D.S., 2009. Green management matters only if it yields more green: an economic/ strategic perspective. Acad. Manag. Perspect. 23 (5), 5–16.

86.  Slawinski, N., Pinkse, J., Busch, T., Banerjee, S.B., 2015. The role of short-termism and uncertainty avoidance in organizational inaction on climate change: a multi-level framework. Bus. Soc. (online first).

87.  Starik, M., Rands, G.P., 1995. Weaving an integrated web: multilevel and multisystem perspectives of ecologically sustainable organizations. Acad. Manag. Rev. 20 (4), 908–935.

88.  Trumpp, C., Guenther, T., 2015. Too little or too much? exploring U-shaped relationships between corporate environmental performance and corporate financial performance. Bus. Strateg. Environ. (first published online).

89.  Wagner, M., 2011. Corporate performance implications of extended stakeholder management: new insights on mediation and moderation effects. Ecol. Econ. 70 (5), 942–950.

90.  Wagner, M., Van Phu, N., Azomahou, T., Wehrmeyer, W., 2002. The relationship between the environmental and economic performance of firms: an empirical analysis of the European paper industry. Corp. Soc. Responsib. Environ. Manag. 146, 133–146.

91.  Walley, N., Whitehead, B., 1994. It's not easy being green. Read. Bus. Environ. 36, 81.

92.  WCED, 1987. Our Common Future. Oxford University Press, Oxford .

93.  Williams, G., Zinkin, J., 2008. The effect of culture on consumers' willingness to punish irresponsible corporate behaviour: applying Hofstede's typology to the punishment aspect of corporate social responsibility. Bus. Ethics Eur. Rev. 17 (2), 210–226.

94.  Young, J.E., 1991. Reducing waste, saving materials. In: Brown, L., et al. (Eds.), State of the World. W.W. Norton, NY, pp. 39–55.