Simultaneous Association between Quality of Corporate Environmental Performance and Financial Performance: Evidence from Select Asian Countries

What is it about?

The aim of this study is to empirically investigate the bi-directional association between quality of environmental performance and financial performance of firms selected from three Asian countries – Japan, South Korea and India. Content analysis technique in a four-point scale is used to measure the quality of environmental performance, while financial performance is measured by market-to-book ratio. To examine the bi-directional association between environmental performance and financial performance, the study employs two-equation System GMM model and for further robustness checking, two-equation fixed effects regression model. The findings of the study indicate that the impact of environmental performance on financial performance is positive and significant for Japan and South Korea. Similarly, the impact of financial performance on environmental performance is also positive and significant for Japan and South Korea. In India, the observed coefficients are positive but not significant.

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Why is it important?

The implication of this study is that through environmentally responsible business practices firms not only improve the economic performance but also helps to fulfill some of sustainable development goals of United Nation’s 2030 development agenda.