THE IMPACT
OF NATIONAL CULTURE ON CORPORATE ENVIRONMENTAL PERFORMANCE:
How much
does your origin say about how green you are?
Antonio Salvi1
Anastasia
Giakoumelou2
Felice
Petruzzella3
1Full Professor of Corporate Finance, LUM Jean Monnet
University, Casamassima (BA), Italy (salvi@lum.it)
2Ph.D. student, LUM Jean Monnet University, Casamassima
(BA), Italy (giakoumelou.anastasia@gmail.com)
3Ph.D. student, LUM Jean Monnet University, Casamassima
(BA), Italy
ABSTRACT
This paper aims to study the effect of national
culture on corporate environmental responsibility practices and commitment. To
this end, we employ the Hofstede framework of cultural dimensions in order to
examine each cultural aspect’s power to predict a firm’s environmental
performance. Furthermore, we explore the potential of national environmental
commitment as a moderator of the relationship between national culture and
corporate environmental performance.
Our findings, deriving from a sample of 591 corporations
of the S&P 1200 index, suggest that a firm’s environmental performance is
influenced by the culture characterizing its country of origin. Among the
cultural aspects that function as predictors of corporate environmental
commitment we identify the power distance dimension, as well as masculinity,
long-term orientation and indulgence levels. Our study finds no support for
moderation effects originating from national environmental efforts on the
examined relationship. Finally, national culture dimensions remain significant
in both models of analysis highlighting the strength of the liaison between a
firm and its national culture context.
KEYWORDS
National culture, Hofstede cultural dimensions, environmental
performance, institution- based view
1. INTRODUCTION
The cultural dimension has long been recognized as
one of the most crucial factors for a firm’s success in the international arena
(Jaeger, 1986; Head, 1991; Alder, 1991; Yaeger, Head and Sorensen, 2006).
Managerial skills now require intercultural sensitivity and the consideration
of diverse cultural contexts as a necessity. In this context and given the
increased importance of environmental concerns for both academics and
practitioners, responsible practices cannot be regarded as a reality that can
be isolated from the complexities of cultural factors.
Environmental responsibility falling under the
umbrella of corporate social responsibility has become a mantra for the 21st
century, especially during the past two decades (Campbell, 2007). Nevertheless,
definitions and measures applied to both CSR and corporate environmental
commitment still find little consensus within existing literature. Firm
environmental performance has been studied under a wide range of perspectives
with empirical research investigating its impact on a firm’s financial
performance, stakeholder management, employee engagement and several related
fields. However, only a limited number of studies have focused on its
antecedents.
Studies that majorly examined the antecedents of CSR
categorize such determinants by firm-level dimensions, such as firm size
(Udayasankar, 2007; Chih et al., 2010) and a firm’s precedent financial
performance (López et al., 2007), by industry-level dimensions, such as the
legal framework regulating an industry (Strike et al., 2006), and, finally, by
national-level dimensions, such as laws (Spicer et al., 2004), NGO density
(Chih et al., 2010) and societal culture (Waldman et al., 2006).
Ioannou and Serafeim (2012) reveal, through an
extended empirical study that national- level dimensions account for almost 35%
of the variance encountered in CSR commitment. They further suggest that 55% of
such variance can be attributed to firm-level dimensions and only 10% to
industry effects. In the meantime, a large body of studies exploring the effect
of national-level factors on CSR and environmental practices focuses on formal
institutions, such as legal frameworks and financial structures. Nonetheless, little academic attention has been granted to
informal institutions, such as national culture and norms (Moon, 2004;
Campbell, 2007; Chih et al., 2010).
In the present study, we adopt an institution-based
view and investigate the relationship between a firm’s environmental
performance and the cultural framework of its country of origin. Suggesting
that,national culture is an influential factor that needs to be taken into
consideration upon determining a firm’s respective strategy and practices, in
order to guarantee their effective implementation within an international
environment, we aim to extend existing literature and test how cultural
differences affect a firm’s environmental performance.
The notion of an ethical organization is regarded
as a pillar of modern international management practices (Bartunek and Wood,
2012). As a consequence, respect for the environment is now viewed as an
inherent part of the ethical dimension of firms and their relationships with
key stakeholders (Batstone, 2003). Notwithstanding this new notion, little is
known with regard to the differences that environmental expectations present in
diverse cultural contexts. Despite the consideration of environmental
responsibility as a pillar of modern corporate strategies and managerial
challenges, we have a limited view of how relative practices vary in terms of
importance and engagement when the cultural context of firms alters. The latter
becomes even more complicated as a concept when accounting for firms that
already operate in an international arena where several cultural backgrounds
are involved within regulations, stakeholders and expectations firms are called
to meet.
2. LITERATURE REVIEW & HYPOTHESES
Our paper aims to empirically study the cultural
antecedents of environmental performance focusing on the national culture
dimension as a predictor of commitment. As a consequence, we review relevant
existing literature that has already
investigated the fields of CSR and green attitude drivers (Campbell,
2007; Chih et al., 2010), the relationship between national culture and green
practices (Ho et al., 2011; Ringov and Zollo, 2007) and the evolution of
national culture over time (Hofstede, 1980). We dedicate major attention to the
field of CSR given that environmental commitment is regarded as an undeniable
and inherent attribute of CSR strategies.
A significant amount of studies that explored CSR
antecedents stress the effect of formal institutions, such as the legal
frameworks that bind firms, as previously mentioned (Campbell, 2007; Chih et
al., 2010; Moon, 2004). In the present study we follow the aforementioned line
of work on a secondary level inserting variables reflecting institutional
aspects as a control mechanism while placing our key focus on the informal aspects
of national-level factors affecting CSR, such as culture (Ringov and Zollo,
2007; Waldman et al., 2006). To this effect, even less academic works appear to
be inclusive of all cultural dimensions (power distance, individualism,
masculinity, uncertainty avoidance, long-term orientation and indulgence), as
presented in the Hofstede model (Ho et al., 2011; Ringov and Zollo, 2007). The
predominant stream of studies focus on single dimensions of national culture or
a subset of them, with power distance and individualism being at the center of
analysis (Ioannou and Serafeim, 2012; Waldman et al., 2006). Nevertheless,
existing literature in the field is met with inconsistent findings regarding
the relationship between national culture and CSR commitment.
Among findings, support for the predicting power of
cultural dimensions, such as institutional collectivism and power distance, on
CSR commitment within the top management of a firm is found (Waldman et al.,
2006). Researchers argue that culture has an effective impact on a firm’s CSR
and environmental commitment. In this direction, Maignan and Ralston (2002),
based on French and German consumers compared to US consumers, found
indications that consumers press firms to act ethically.
Hofstede’s national culture model is
also employed by Ho et al. (2011) and Ringov and Zollo (2007) who further
investigate the impact of national culture on firm’s CSR and environmental
engagement.
We are basing our paper on the classic studies of
national culture by Hofstede, developing our hypotheses around the dimensions
of national culture recognized within the adopted framework.
Power Distance Index (PD)
Power distance values represent the degree to which
the members of a society believe that power should be concentrated in the hands
of leaders, and these people should be obeyed without question (Hoftede, 1980;
Ho et al., 2011; Ringov and Zollo, 2007; Waldman et al., 2006; Hoftede, 2011;
Peng et al., 2012). Upon this notion of power distance, we can expect that
higher power distance values are linked to decreased dialogue between
management and employees and decreased consumer pressure on the respective
firms with regard to their environmental performance.
The power distance index (PDI) refers to the degree
to which less powerful members of a
society accept and expect that power is distributed unequally. Individuals in
high power distance societies tend to accept a hierarchical order and
inequality without further justification. On the other hand, low power distance
societies make an effort to even powergaps out. Thus, we can once more expect
that firms operating in countries characterized by high power distance may
exhibit lower environmental commitment.
H1: Power distance is negatively
related to a firm’s environmental performance.
Individualism (IND)
Individualistic cultures are comprised of individuals
that prioritize interests of their own and of their direct families rather than
collective objectives (Hofstede, 1980; Hoftede, 2011). In highly
individualistic societies personal and societal relationships appear to be
loose. On the contrary, collectivistic societies function more towards the
interests and the welfare of the group.
Existing studies demonstrate that there is a negative
relationship between individualism (IDV) and CSR performance (Ringov and Zollo,
2007; Ho et al., 2012; Akaah, 1990). Data also suggest that employees within
individualistic contexts, compared to those working for collectivistic firms or
nations, present less ethically oriented behaviors. Therefore, we can expect
that firms operating in countries with highly individualistic cultures place
less attention on their impact on the environment and the collective, connected
to a lower degree of environmental commitment.
H2: Individualism is negatively related
to a firm’s environmental performance.
Masculinity (MASC)
Masculine societies revolve around individuals that
value more competitiveness, achievement, assertiveness, power, and material
reward for success (Hofstede, 1980; Hoftede, 2011). Opposite to masculine
societies, societies with lower masculinity values , also characterized as
feminine societies, tend to appreciate more relationships, cooperation, caring,
modesty and quality of life (Hofstede, 1980; Hoftede, 2011). Masculine societies exhibit less
cooperative and helping behaviors (Steensma et al., 2000; Tice and Baumeister,
2004), while they present a tendency versus unethical behaviors and the
pursuing of personal gains (Vitell and Festervand, 1987). Previous studies
indicate a negative relationship between masculinity (MAS) and CSR commitment
(Ringov and Zollo, 2007; Peng et al.,
2012). Thus, we can expect that firms operating in a context with higher
masculinity values appear to adopt lower levels of environmental commitment.
H3: Masculinity is negatively related
to a firm’s environmental performance.
Uncertainty Avoidance Index (UNCA)
This index (UAI) refers to the degree to which
uncertainty and ambiguity are shared and accepted within a society. Societies
with high values of uncertainty avoidance disapprove of uncertain and ambiguous
situations. Strict and explicit codes of conduct, laws and regulations are
normally put in place in order to minimize the uncertainty in societies
characterized by a high degree of uncertainty avoidance. Opposite to the
latter, societies with low uncertainty avoidance values tend to adopt flexible
attitudes and behaviors and are more likely to take on risky conducts or
endeavors (Hofstede,1980; Hoftede, 2011).
Researchers (Rallapalli et al., 1994) reveal that
riskier conducts are linked to more unethical backgrounds. Additionally, data
from current literature support the notion of a positive relationship between
uncertainty avoidance and environmental engagement (Ringov and Zollo, 2007; Ho
et al., 2012; Peng et al., 2012). Therefore, we can expect that firms operating
in an uncertainty avoiding ambient, where rigid laws and regulations are in
place, will demonstrate higher environmental commitment.
H4: Uncertainty avoidance is positively
related to a firm’s environmental performance.
Long-term Orientation (LTO)
Higher values upon this cultural dimension
correspond to increased perseverance,
thrift, ordering relationships by status, and having a sense of shame.
Opposite, short-term oriented cultures present respect for tradition,
protection of personal reputation, steadiness and reciprocal social commitments
(Hofstede and Bond, 1988; Hoftede,
2011). A longer-term orientation is frequently associated to countries
that are open to adapt to improvements suggested by practices adopted by other
cultures. What is more, long-term orientation characterizes societies with a
higher probability of increased savings that grant funds for investments. As a
result of the previous considerations, we expect firms that originate from
long-term oriented countries to be more considerate versus the environment.
H5: Long-term orientation is positively
related to a firm’s environmental performance.
Indulgence (INDU)
Higher levels of the indulgence dimension indicate
cultures that allow relatively free gratification of basic and natural human
desires connected to enjoying life and having fun (Hofstede, 2011). Although
this cultural dimension has been found to be correlated to the Long-term
Orientation dimension of national culture, it is considered to represent
attributes that are not comprehensively reflected by the other five dimensions.
Countries that lean towards the indulgence pole consists of individuals that
greatly value their personal freedom and leisure, as well as the unconditional
pursuit of happiness, focusing less on norms and order within their society. Restrained
societies, instead, are characterized by increased norms and formal control.
Consequently, we posit that firms operating in a more indulgent cultural
context will adopt less strict environmental commitment.
H6:
Indulgence is negatively related to a firm’s environmental performance.
3. RESEARCH DESIGN
3.1. Data
In order to test our hypotheses, we collect firm-level and
industry-level data from multiple databases.
Primarily we originate data from the
Dow Jones Sustainability Index (DJSI) and the Compustat Global Vantage
database, specifically the S&P Global 1200 index4.1 Data
concerning environmental performance measures are drawn from the Asset4 Thomson
Reuters database. Furthermore, we draw our country-level data from the CIA
World Factbook web page, the World Bank databases, the human development
program of United Nations and the PRS group, while cultural scores for each
country originate from Geert Hofstede's online database (https://geert-
hofstede.com/national-culture.html).Finally, financial data at a firm-level are
drawn from Datastream.
1 1The S&P Global 1200 provides efficient exposure to the
global equity market. Capturing approximately 70% of global market
capitalization, it is constructed as a composite of 7 headline indices, many of
which are accepted leaders in their regions. These include the S&P 500®
(US), S&P Europe 350, S&P TOPIX 150 (Japan), S&P/TSX 60 (Canada), S&P/ASX
All Australian 50, S&P Asia 50 and S&P Latin America 40. (Source:
http:// us.spindices.com/indices/equity/sp-global-1200)
Our sample frame consists of firms included in the
S&P 1200 index and cover a time window from 2003 until 2013. We are
confident that the sample employed is big enough to be considered free from a
non-normal distribution bias, according to the central limit theorem and the
law of large numbers (Stock and Watson, 2005).
Additionally, the time span of this study’s sample grants our analysis with a
longitudinal character.
Elaborating our data, we initially downsize the
sample to account for firms that lack relevant data. After adjusting the sample
for this first criterion and in order to obtain a balanced panel dataset, a
total of 689 firms’ data are available. The sample has been further filtered down, in order to
remove outliers (Stock and Watson, 2005). Furthermore, despite the universal
nature of analysis we adopt by including all industries, we opt for the
exclusion of two sectors (telecommunications and financials) in order to
guarantee major logic in our findings. The rationale behind the latter decision
has been the marginal relevance of environmental concerns in the two eliminated
sectors that would insert a bias in the resulting conclusions. The final sample
is comprised of 591 firms that generate a total of 6,056 observations.
Following, Tables 1 and 2 summarize the main descriptive
characteristics of this study’s sample, in terms of geographic cluster and
industrial sector.
Table 1. Sample
composition by geographic area
|
GEOGRAPHIC
AREA
|
NUMBER OF FIRMS
|
PERCENTAGE IN SAMPLE
|
|
North America
|
293
|
50%
|
|
Europe
|
166
|
28%
|
|
Asia
|
111
|
19%
|
|
South America
|
7
|
1%
|
|
Australia
|
14
|
2%
|
|
TOTAL
|
591
|
100%
|
Author’s elaboration
North America appears to be the most representative
geographic cluster consisting of 50% of the firms in the sample. It is followed
by Europe with 28% and Asia with 19% of the firms studied. In the meantime,
Australian and South American firms only account for 2% and 1% of the sample
respectively. More specifically, the North America sample includes USA and
Canada, while the South America one consists of Chile, Brazil and Mexico. On
the other hand, the European sample is composed by firms from Austria, Belgium, Denmark, Finland, France,
Germany, Ireland, Italy,
Luxembourg, Netherlands, Norway,
Spain, Sweden, Switzerland, and U.K., while the asian sample is made up
by China, Hong-Kong, Japan, the Republic of Korea, Singapore and Taiwan.
With regard to the sample’s
composition by industry, the industrials represent 22% of the sample’s firms,
followed by consumer goods and consumer services with 18% and 15% respectively.
Basic materials have a 11% presence in the sample, while technological companies
account for 10% of the data. Healthcare and oil and gas represent 9% of firms
in the sample each and, finally, utilities include 6% of firms examined.
|
|
Industrials
Consumer Goods
Consumer Services
Basic Materials
Technology
Healthcare
Oil & Gas
Utilities
|
135
104
83
64
60
56
55
37
|
22%
18%
15%
11%
10%
9%
9%
6%
|
Table 2. Sample composition by
industry
Author’s elaboration
3.2.Variables
The aim of this paper is to measure the impact of
national culture on a firm’s environmental aptitude. In order for us to move
forward with our study we employ a set of variables that operationalize the
concepts we wish to explore.
3.2.1 Dependent variable
Our dependent variable that represents the core of
this paper measures the environmental performance of firms considered in the
sample. To this end, we employ categorical data to measure environmental
performance that is represented by the environmental score variable (ENVSC).
The environmental score measures a company's impact on living and non-living
natural systems, including air, land and water, as well as complete ecosystems
that surround it. It reflects how well a company uses management practices to mitigate environmental
risks and capitalize on environmental opportunities in order to generate long
term shareholder value. The dependent variable is measured by a scale from 0 to
100, with higher scores reflecting firms that demonstrate a superior
environmental commitment and performance. Our data concerning the environmental
score of firms in the sample derive from the Asset4 Thomson Reuters database.
3.2.2 Independent variables
Our focus of investigation is the relationship between
the national culture dimensions, as represented within the Hofstede framework,
and the environmental performance of firms. Therefore, we employ six
independent variables to measure the six individual cultural aspects at a
national level: power distance, individualism, masculinity, uncertainty
avoidance, long-term orientation and indulgence (Hofstede, 1980; Hofstede,
2011). We adopt categorical data for the independent variables that reflect the
cultural scores for each nation present in the sample (Hofstede, 2001). Each
firm is assigned with an environmental score and then supplemented with the
national cultural values.
Power distance (PD): This variable expresses the
degree to which the less powerful members of a society accept and expect that
power is distributed unequally. The fundamental issue here is how a society
handles inequalities among people. People in societies exhibiting a large
degree of Power Distance accept a hierarchical order in which everybody has a
place and which needs no further justification. In societies with low Power
Distance, people strive to equalise the distribution of power and demand
justification for inequalities of power.
Individualism (IND): The high side of this variable
represents a preference for a loosely-knit social framework in which
individuals are expected to take care of only themselves and their immediate
families. Its opposite, collectivism, represents a preference for a tightly-knit framework in
society in which individuals can expect their relatives or members of a
particular in-group to look after them in exchange for unquestioning loyalty. A
society's position on this dimension is reflected in whether people’s
self-image is defined in terms of “I” or “we.”
Masculinity (MASC): The Masculinity pole of this variable
represents a preference in society for achievement, heroism, assertiveness and
material rewards for success. Society at large is more competitive. Its
opposite, femininity (represented by low scores), stands for a preference for
cooperation, modesty, caring for the weak and quality of life. Society atlarge
is more consensus-oriented. In the business context Masculinity versus
Femininity is sometimes also related to as "tough versus tender"
cultures.
Uncertainty Avoidance (UNCA): The Uncertainty Avoidance
variable expresses the degree to which the members of a society feel
uncomfortable with uncertainty and ambiguity. The fundamental issue here is how
a society deals with the fact that the future can never be known: should we try
to control the future or just let it happen? Countries exhibiting strong UAI
maintain rigid codes of belief and behaviour and are intolerant of unorthodox
behaviour and ideas. Weak UAI societies maintain a more relaxed attitude in
which practice counts more than principles.
Long-term Orientation (LTO): Every society has to
maintain some links with its own past while dealing with the challenges of the
present and the future. Societies
prioritize these two existential goals differently. Societies who score low on
this dimension, for example, prefer to maintain time-honoured traditions and
norms while viewing societal change with suspicion. Those with a culture which
scores high, on the other hand, take a more pragmatic approach: they encourage
thrift and efforts in modern education as a way to prepare for the future. In
the business context this dimension is related to as "(short term)
normative versus (long term) pragmatic" (PRA). In the academic environment
the terminology Monumentalism versus Flexhumility is sometimes also used.
Indulgence (INDU): The variable stands for a society
that allows relatively free gratification of basic and natural human drives
related to enjoying life and having fun. Restraint stands for a society that
suppresses gratification of needs and regulates it by means of strict social
norms.All data regarding national culture dimensions and comprising
the study’s independent variables have been collected
from Geert Hofstede’s online database and are measured on a scale from 0 to 100.
3.2.3 Control variables
In accordance with current literature in the field
(Ho et al., 2011; Ringov and Zollo, 2007), this study aims to control for all
three levels considered: firm level effects (firm size and precedent financial
performance), industry level effects and national level effects.
FIRM-LEVEL EFFECTS
Firm size (FS): Firm Size is measured by the variable
FS, calculated as the natural logarithm of the company’s total assets.
Precedent financial performance (EBITDA): This
variable represents the EBITDA margin, a measure of the firm’s previous
profitability, and is calculated dividing the firm’s EBITDA by its net sales.
Financial data regarding firms in our sample are gathered from the Datastream
database.
INDUSTRY-LEVEL EFFECTS
Given that literature suggests that industry effects,
such as industry characteristics, stakeholders and context of operations
(Decker, 2004; Donleavy et al., 2008; Tan and Chow, 2009; Cruz and Boehe, 2010;
Ho et al., 2012) can lead to an unsystematic variation of environmental
practices, we employ industry-specific dummy variables for each corporation and
control for the relative effects.
NATIONAL-LEVEL EFFECTS
In order to isolate the net effect of culture on CSR
and environmental performance, we follow former academic works that locate four
main influential factors within a specific country: the level of economic
development, standard of living, laws and regulation and knowledge capital. We
add to previous research and the controls that were put to use to study the
relationship of interest one more variable that may be a potential predictor of
environmental performance at the national-level: . To control for the potential
effects of the latter we insert in our analysis part the following variables
used as proxies:
Economic development (GDPCG): GDP per capita is
calculated as the gross domestic product divided by midyear population for each
country of the sample. GDP is the sum of gross value added by all resident
producers in the economy plus any product taxes and minus any subsidies not
included in the value of the products. It is calculated without making
deductions for depreciation of fabricated assets or for depletion and
degradation of natural resources. Data are originated from the World Bank database.
Life Expectancy at Birth (LEX): This variable
represents age-specific mortality rates. More specifically, life expectancy at
birth is a basic indicator of health and social development within a country.
It is closely related to human health, environmental, and economic conditions.
These three elements are considered an integral part of sustainable development
and primary environmental care. It captures the ability to access public
health-care and primary health-care services, as well as the health effects of
environmental degradation and exposure to hazardous substances in the
workplace. Calculation of life expectancy at birth is based on age-specific
mortality rates for a particular calendar period. Technically, higher values
indicate the higher quality of life of individuals in the specific country.
This type of data is drawn from The CIA World Factbook for all countries
represented in our sample.
Political Risk Rating (PRS): This variable represents
various risks associated with the political and business environment with which
firms are faced in a country of operations. We employ the political risk rating
of countries as a proxy for laws and regulations within a national context,
since law application and effectiveness, corruption and bureaucracy are among
the major weight factors composing the index. In order to collect data on the
variable of interest, we employ the International Country Risk Guide that
includes a Political Risk Index, which in turn consists of 12 components. We
use data from December reports of each year provided by the PRS Group.
Human Development Index (HDI): The specific variable
refers to a country’s potential of human development and wellbeing. A composite
of the HDI index consists of life expectancy, educational attainment and income
indicators, in terms of length and health of life, years and expected years of
schooling, as well as a standard of living. The scores for the three HDI
dimension indices are aggregated into a composite index. Higher scores indicate
improved human development. Our data is originated from the United Nations
Development Program (UNDP).
CO2 National Emissions Reduction (NER): Carbon
dioxide emissions are those stemming from the burning of fossil fuels and the
manufacture of cement. They include carbon dioxide produced during consumption
of solid, liquid, and gas fuels and gas flaring. This specific variable
represents emissions reduction at a yearly national level and is employed as a
proxy for national environmental performance. Data regarding CO2 emissions
reduction for each country of the sample are drawn from the World Bank
database.
Before proceeding with the analysis part of our
study, Table 3 provides the descriptive statistics and matrix correlation
concerning the dependent, independent and control variables employed.
Table 3. Matrix
correlation
MEAN SD 1 2
3 4 5 6 7
8 9
10 11 12 13 14
1
ENVSC 65.87 30.46 1.00
2
PD 43.43 10.14
.10*** 1.00
3
IND 76.42 19.02
-.17***-.63***
1.00
4
MASC 63.36 19.61
-.02* .32***-.36*** 1.00
5
UNCA 57.42 20.44
.14***
.77***-.79***.53*** 1.00
6
LTO 47.47 25.33
.21***
.52***-.85***.43*** .78*** 1.00
7
INDU 60.48 12.64 -.14***-.63***.79***-.49***-.81***-.83*** 1.00
8
NER 0.01 0.04 0.013 -.14***021***-.11***-.15***-.16***.17*** 1.00
9
FS 17.11 2.30 .24*** .48***-.75***.48***
.68*** .69***-.66***-.14*** 1.00
10
EBITDA 0.89 0.28 0.02 0.00 -0.01
0.00 0.01 0.01 -0.01 0.00 0.01
1.00
11
HDI 0.89 0.28 0.01 -.59***.55***-.12***-.38***-.35***.37***
.17***-.23*** 0.00 1.00
12
PRS 0.85 0.50 -0.01 -.67***.29***-.26***-.32***-.14***.34***
.06***-.21*** 0.00 .57*** 1.00
13
LEX 81.23 2.02 .17*** .36***-.68***.51***
.73*** .78***-.67***-.10***.69*** 0.01 -0.01 .14***
1.00
14
GDPCG 0.42 0.72 -.05*** -0.01
-.04***-.16***-.03*** 0.00 -0.02 -.24***-.11*** 0.00 -.24***-.05***-.05*** 1.00 
Author’s elaboration.
Note:
* p < 0.10, ** p < 0.05, *** p < 0.01 (two-tailed test).
4. ANALYSIS
The Ordinary Least Squares (OLS) regression is the
model employed in this study to test our hypotheses. On our attempt to explore
how national culture affects a firm’s environmental performance. Our regression model will be shaped as
follows:
ENVSCi = f (Culturek, X), where i=firm
ENVSCi = β1Culturei,k + βχX + ε1
The subscript k denotes each individual dimension of
culture indicated by the Hofstede framework including power distance (PD),
individualism (IND), masculinity (MASC), uncertainty avoidance (UNCA),
long-term orientation (LTO) and indulgence (INDU). The variable X denotes the
control variables considered in this study: national-level control variables
that include political risk rating, life expectancy at birth, economic development, human development index, and
national environmental performance, as well as firm- specific variables that
include firm size and precedent financial performance. Moving forward, in order
to control for industry effects, as suggested earlier, we create sector dummy
variables to indicate the industrial sector of each firm in the sample.
Elaborating the model, we conduct the Hausman test to
select between a fixed or random effects analysis to render our model more
robust.“Because firms may differ in ways that we do not capture with our
independent variables, we include dummy variables that allow each firm to have
a different constant value. This is a fixed effects analysis because it reduces
the possibility that a firm’s fixed attributes confound the analysis” (King and
Lenox, 2001). This kind of regression requires that changes in the independent
variables be associated with changes in dependent variables. The test results
suggest that we may apply the random effects model for our sample.
In sum, we use a panel multiple OLS model with
random effects controlled for industry dummy variables.
4.1. The
moderating effect of national environmental performance
As mentioned earlier in this study, we make a
consideration that goes beyond the
control factors commonly employed throughout existing literature on the
relationship between national culture and firm environmental performance. Apart
from the main focus on the national culture dimensions and their strength as
predictors of environmental performance for corporations, we also explore the
potentially moderating role upon the relationship of interest generated by the
environmental aptitude of the country of origin. We have previously presented
the variable measuring national CO2 emissions reduction used here as a proxy
for a country’s environmental commitment and performance. In order to delve
deeper into the moderation effect that such factor can generate, we create six
additional variables that result after the multiplication of the cultural
dimension variables with the national environmental performance variable
(Sharma et al., 1981) (Appendix A).
We run a second OLS model introducing the six new
variables. The second model of our analysis controls for industry effects and
is checked for robustness by applying a random effects analysis, according to
our Hausman test indication. Our objective in the case of this further analysis
is to examine the possibility of a stronger or weaker link between national
culture and firm environmental performance depending on the actual tendency of
the country of origin towards environmental responsibility. Considering the
impact that we assume in our initial hypotheses national culture has on a
firm’s environmental efforts, it comes natural assuming that a factor
strengthening such relationship can easily be the stance of the country towards
the environment. We expect firms that operate in a context where protection of
the environment is a strong feature of the country’s agenda to have additional
stimuli towards a stronger environmental performance. Furthermore, we expect
that cultural dimensions will function as stronger or weaker predictors
depending on the national environmental performance. Thus we posit the
following two hypotheses:
H7: National CO2 emissions reduction is
positively related to a firm’s environmental performance.
H8:
National CO2 emissions reduction will positively affect the relationship
between cultural predictors and a firm’s environmental performance.
5. FINDINGS
The key findings of this study are presented and
analyzed in this section. Our results are robust to the effect of
multicollinearity, outliers and non-linearity. We run a Variance Inflation Factor
test (VIF) to make sure that multicollinearity does not affect the panel and
the resulted VIF values in our regression models are considerably within the
limit, as none of VIF approached the critical value of 10 (Stock and Watson,
2005). Additionally, we run a White test
to rule heteroskedasticity out as a bias within the panel. The test results
allow us to consider heteroskedasticity a null issue. Finally, the results of
the models that test our hypotheses are demonstrated in Table 4.
Proceeding with the actual results (Table 4), our
primary assumption is confirmed as national culture appears a significant
predictor of a firm’s environmental performance. In particular, hypothesis 1, 3
and 5 are confirmed by our analysis at a 1% significance level. Moreover,
hypothesis 6 is also confirmed at a 10% significance level. As a result, we
find support for the position that national culture affects a company’s
environmental profile as four out of six cultural dimensions as presented
within the Hofstede model appear to be significant predictors of the dependent
variable. Our results appear to be in line with major works in the field so far
(Ho et al., 2011; Ringo and Zollo, 2007; Waldman et al., 2006) that suggest a
strong relationship between CSR and national cultural context. However, we do
come across discrepancies between our findings and those of relevant academic
works in the specifics. For instance, Ioannou and Serafeim (2012) and Waldman
et al. (2006) have highlighted the significance of the power distance and
uncertainty avoidance dimensions. To this point, our analysis only agrees
partially, since a highly significant relationship between power distance
scores and firm environmental scores has been found, which was not the case for
the uncertainty avoidance dimension, with Hypothesis 4 not supported by
findings. Another hypothesis to lack support from our data was the one
suggesting a relationship between environmental performance and individualism
values.
In addition to the previous findings, we find strong
support for the positive relationship between a country’s environmental
performance and that of firms operating in it. Among control variables, on the
other hand, we observe a significant relationship between our dependent
variable and the human development index, firm size and life expectancy at
birth.
Concluding with our quantitative analysis, we find no
support for our final hypothesis (Hypothesis 8) regarding the moderating role
of national environmental performance on the relationship between national
culture and firm environmental performance. Nevertheless, some interesting
highlights have risen through the analysis of our second model. Despite the
lack of support for the national environmental performance variable as a
moderator, provided that all inserted variables to test our hypotheses result insignificant,
we do observe some interesting dynamics. Cultural dimensions and the way they
result in our first model remain almost unaffected by the alterations,
further supporting Hypotheses 1, 3, 5, 6
and 7, with some slender positive movement in their coefficients. Firm size,
the human development index and life expectancy at birth remain significant and
almost invariant too.
Table 4. Impact of National Culture and
National Environmental Performance on Environmental
Note:
industry dummies are included in the model. Standard errors are presented in
the parentheses.
* p < 0.10, **
p < 0.05, *** p < 0.01 (two-tailed test)
6. DISCUSSION AND LIMITATIONS
In this paper we make an attempt to explore the
relationship between national culture and a firm’s environmental performance.
This association has been explored thoroughly under the CSR umbrella by Ho et
al. (2011) and Ringo and Zollo (2007) that are our key literature references.
However, findings throughout literature appear inconsistent. The variance that
is present across studies can be attributed to the different methodologies
applied. Samples among papers vary and more often than not multinationals are
not directly comparable.
As suggested within existing research on culture,
national cultures outline a nation’s value system, which has an influence on
shaping individuals’ attitudes that further determine notions of CSR, and the
respective adopted practices (Sirmon and Lane, 2004).
Having specified the analytical features of each
cultural dimension, as well as its links to CSR commitment and environmental
engagement within current academic works, our findings connect improved
environmental performance to cultures characterized by higher power distance
scores, masculinity, long-term orientation and indulgence. Our results
contradict the vast stream of academic insights in the field that associate
responsible behaviors with lower power distance values, masculinity and
indulgence. One possible interpretation of our findings associating improved
environmental performance with higher power distance and masculinity values can
be sought in the school of thought that connects CSR and environmental
practices and commitment to a strong management with clear vision and dominant
presence in companies and among employees. At the same time, our findings
concerning the long-term orientation of cultures that enhance environmentally
responsible practices are in line with works on national culture and CSP,
although the uncertainty avoidance dimension of a country’s culture does not
appear to be a significant predictor of its environmental engagement. The
long-term orientation of more
environmentally friendly cultures and firms can be attributed to their belief
systems that place major importance in the future, setting goals and acting
with prudence, which constitute factors enhancing the studied relationship.
In addition to findings concerning the individual
cultural dimensions that compose national cultures, we find great support for
our hypothesis suggesting that on a country level a very potent predictor of
environmental performance is the actual national performance in the field.
Moreover, certain control variables appear to be strongly related to
environmental performance of corporations around the world. A firm’s size, for
instance, is positively associated to its environmental commitment, a result
potentially explained by the major funds available for investment in firms of
bigger size in terms of assets and revenue. Moving towards country-level
effects, we find a positive relationship between the human development index
values, as well as the environmental performance of the country. Such finding
can be interpreted through the increased environmental awareness within a
country that may result in more rigid regulations and expectations regarding
the environmental behavior of firms. Finally, we discern a negative
relationship between life expectancy at birth and firm environmental
performance. Although conclusions cannot be direct and binding in this case, we
may find rationale behind such dynamics by digging into the more eminent health
issues and standard of living in countries that present lower life expectancy
values and call for urgent measures to improve impact on the environment.
Our study aims to fill theoretical gaps in the field
of interest by exploring the informal institution effects on firms’ CSP moving
further than the widely shared focus on the formal institutions underlying
national cultures.
At this stage, we cannot help but also recognize the
limitations that bind our work but at the same time give rise to opportunities
for further future exploration of the topic of interest. For instance, the
effect that national culture has on the levels of environmental commitment may
deviate, according to firm characteristics that include the level of
multinationality. Additionally, the operationalization methods adopted by each
study can have a toll on the final findings. In the current study,
environmental performance is measured by a categorical variable, while other
research works employ a continuous measure for CSR and environmental practices.
In a similar manner, the six cultural dimensions that are here viewed under the
Hofstede model are not an exclusive mode of consideration for culture.
Different combinations of cultural dimensions can be taken into account, as
well as different models depicting the underlying dimensions.
Furthermore, future potential can rise from other
limitations faced within this investigation. What other researchers may also
investigate is the interaction between institutions and CS practices and commitment, which might account
for some explanatory role in the relationship. An extra point of interest can
also appear in the study of the dynamics within regions when studies extend
their view beyond a cross-regional analysis or limit it down to a regionally
specific frame. Lastly, inserting firm financial performance can specify the
aspects of expanded CSR practices that go beyond environmental efforts and are
linked to given cultural contexts generate the
highest returns on investments realized.
The present study gives birth to several
implications both for academics and managers, especially practitioners that act
in an international environment. CSR and environmental strategies can now take
into account the specifics of a market’s cultural context in order to customize
practices and adopt the ones that are the most appreciated in each background.
Moreover, policy makers that affect corporate actions or are responsible for
foreign investments can apply new insights on their decisions regarding how to
attract capital and how to better market their countries gaining a competitive
advantage by evaluating potential investors’ sensitivity and the host country’s
dynamics. Concluding, the major contribution of this study lies in the strength
that findings grant to the impact of national culture on green practices and
relative performance of firms. Capitalizing
on the knowledge that national culture has a robust and long-term
influence on the real performance of firms can generate a complete strategic
shift in managerial approaches. Finally, the connection between a country’s
environmental performance and that of firms operating within its borders gives
precious insight to environmental engagement as a reality that needs to be
considered under a holistic prism that incorporates firms, communities,
consumers and the state per se in order to bear fruit.
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APPENDIX
APPENDIX A:
Variables description
NAME CODE
DEFINITION MEASURE
SOURCE
DEPENDENT VARIABLES
The environmental score
measures a company's impact on living
and non- living natural systems,
including air,
Environmental land
and water, as well as complete
ENVSC
ecosystems. It reflects how
well a Scale: 0-100 Asset4
Score company
uses best management Thomson
practices to avoid environmental
Reuters risks and capitalize on environmental opportunities in order to
generate long term shareholder value.
|
|
|
INDEPENDENT
VARIABLES
|
|
|
|||
|
Power
Distance
|
PD
|
This
dimension expresses the degree to
which the less powerful members of a
society accept and expect that power
is distributed unequally. The
fundamental issue here is how a
society handles inequalities among
people. People in societies exhibiting
a large degree of Power Distance
accept a hierarchical order in which everybody has a place and which
needs no further justification. In societies with low Power Distance, people
strive to equalise the distribution of power and demand justification for
inequalities of power.
|
Scale: 0100
|
Official Geert
Hofstede Online
Database
https://geert
-
hofstede.co
m/ national- culture.html
|
|||
|
Individualism
|
IND
|
The
high side of this dimension, called
individualism, can be defined as a
preference for a
loosely-knit s o c i a l f r a
m e w o r k i n w h i c h individuals
are expected to take care
of
only themselves and their immediate
families. Its opposite, collectivism,
represents a preference for
a tightly-knit framework in society
in which individuals can expect their relatives or members of a particular in-group to look after them
in exchange for unquestioning loyalty. A society's position on this dimension
is reflected in whether people’s self-image is defined in terms of “I” or
“we.”
|
Scale: 0-
100
|
Official Geert
Hofstede Online
Database
https://geert
-
hofstede.co
m/ national- culture.html
|
|||
|
Masculinity
|
MASC
|
The
Masculinity side of this dimension
represents a preference in society
for achievement, heroism,
assertiveness and material rewards
for success. Society at large is more competitive. Its opposite,
femininity, s t a n d s f o r a p r e f e r e n c e f o r cooperation,
modesty, caring for the weak and quality of life. Society at large is more
consensus-oriented. In the business context Masculinity versus Femininity is
sometimes also related to as "tough versus tender" cultures.
|
Scale: 0-100
|
Official Geert
Hofstede Online
Database
https://geert
-
hofstede.co
m/ national- culture.html
|
|||
|
Uncertainty
Avoidance
|
UNCA
|
T
h e U n c e r t a i n t y Av o i d a n c e dimension expresses the degree
to which the members
of a society feel uncomfortable with
uncertainty and ambiguity. The
fundamental issue here is how a
society deals with the fact that the
future can never be known: should we
try to control the future or just let
it happen? Countries exhibiting strong UAI maintain rigid codes of belief and
behaviour and are intolerant of unorthodox behaviour and ideas. Weak UAI
societies maintain a more relaxed attitude in which practice counts more than
principles.
|
Scale: 0-
100
|
Official Geert
Hofstede Online
Database
https://geert
-
hofstede.co
m/ national- culture.html
|
|||
|
Long-term OrientationLTO
|
Every
society has to maintain some links
with its own past while dealing with
the challenges of the present and
the future. Societies
prioritize
t
h e s e t w o e x i s t e n t i a l g o a l s differently. Societies who score low on this
dimension, for
example, prefer to
|
|
|
||||
|
|
|
maintain
time-honoured traditions and
norms while viewing societal change
with suspicion. Those with a culture
which scores high, on the other hand,
take a more pragmatic approach: they encourage thrift and efforts in modern
education as a way to prepare for the future.
In
the business context this dimension is related to as "(short term)
normative versus (long term) pragmatic" (PRA). In the academic
environment the terminology Monumentalism versus Flexhumility is sometimes
also used.
|
Scale: 0-
100
|
Official Geert
Hofstede Online
Database
https://geert
-
hofstede.co
m/ national- culture.html
|
|||
|
|
|
Indulgence
stands for a society that allows relatively free gratification of basic and
natural human drives
|
|
Official Geert
Hofstede Online
Database
|
|||
|
Indulgence
|
INDU
|
related to
enjoying life and
having fun. Restraint stands
for a society that suppresses
gratification of needs and regulates it by means of strict social norms.
|
Scale: 0-100
|
https://geert
-
hofstede.co
m/ national- culture.html
|
|||
|
CO2
National
|
|
Carbon
dioxide emissions are those stemming
from the burning of fossil fuels and
the manufacture of cement.
|
|
|
|||
|
Emission
Reduction
|
NER
|
They
include carbon dioxide produced during consumption of solid, liquid, and gas
fuels and gas flaring.
|
Annual %
change
o f
g r o s s C O 2
e
m i s s i o n s p e r capita (metric tons)
|
World Bank
|
|||
|
|
|
CONTROL
VARIABLES
|
|
|
|||
|
Firm
Size
|
FS
|
Firm
Size represents the firm size calculated as the natural logarithm of the
company’s total assets.
|
log
of Total
Assets
|
Datastream
|
|||
|
EBITDA
Margin
|
EBITDA
|
EBITDA
Margin represents the firm’s
EBITDA margin. a measure of the firm’s profitability.
|
EBITDA/Net sales or Revenues
|
Datastream
|
|||
|
Human
Development
Index
|
HDI
|
The
Human Development Index (HDI)
is a summary measure of average
achievement in key dimensions of human
development: a long and healthy l i
fe, being knowledgeable and have a
decent standard of living. The HDI is the geometric mean of normalized indices
for each of the three dimensions.
|
Scale: 0100
|
Human
Development
Reports,
United
Nations
Development
Programme
|
|
Country
Political
Risk
|
PRS
|
The International Country Risk
Guide includes a Political Risk Index, which in turn consists
of 12 components measuring
various dimensions of the political
and business environment facing firms operating in a country. We use data
from December reports of each year.
|
Scale: 0100
|
Political Risk Services
International
Country Risk
Guide (PRS)
|
|
Life Expectancy at Birth
GDP
per Capita
|
LEX
GDPCG
|
This
variable represents the average number
of years to be lived by a group of
people born in the same year, if
mortality at each age remains constant
in the future. Life expectancy at
birth is also a measure of overall
quality of life in a country and summarizes the mortality at all ages. It can
also be thought of as indicating
the potential return on investment
in human capital and is necessary
for the calculation of various
actuarial measures.
|
Years
|
CIA The World
Factbook
|
|
Growth
|
|
GDP
per capita is gross domestic product d
i v i ded by midyear population. GDP
is the sum of gross value added by all
resident producers in the economy plus
any product taxes and minus any
subsidies not included in the value of
the products. It is calculated without making deductions for depreciation of
fabricated assets or for depletion and degradation of natural resources.
Data are in current U.S.
dollars.
|
Annual
%
change of GDP
per capita in US dollars
|
World Bank
|
|
|
|
MODERATING
VARIABLES
|
|
|
|
CO2 National
Emission
Reduction X
Power Distance
|
NERXPD
|
Product
of the CO2 National
Emission Reduction variable and the - Power Distance variable
|
Authors elaboratio n
|
|
CO2 National
Emission
Reduction X
Individualism
|
NERXIND
|
Product of the CO2
National
Emission Reduction
variable and the -
Individualism variable
|
Authors elaboratio n
|
|
CO2 National
Emission
Reduction X
Masculinity
|
NERXMA
SC
|
Product
of the CO2 National
Emission Reduction
variable and the -
Masculinity variable
|
Authors elaboration
|
|
CO2 National
Emission
Reduction X
Uncertainty
Avoidance
|
NERXUN CA
|
Product
of the CO2 National
Emission
Reduction variable and the - Uncertainty Avoidance variable
|
Authors elaboration
|
|
CO2 National
Emission
Reduction X
Long-term
Orientation
|
NERXLTO
|
Product of
the CO2 National
Emission Reduction
variable and the -
Long-term Orientation
variable
|
Authors elaboratio n
|
|
CO2 National
Emission
Reduction X
Indulgence
|
NERXIND U
|
Product of the CO2
National
Emission Reduction
variable and the -
Indulgence variable
|
Authors elaboratio n
|
APPENDIX B:
Variance Inflation
Factor (VIF) test
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