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.
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