Heterogeneity in Firm Environmental Management Activity: Antecedents and Operational Impacts

Abstract

In response to ever-increasing societal concern, firms adopt environmental management practices (EMPs) to mitigate the impact of their operations on the natural environment. However, they vary significantly in the number and types of practices they adopt, and in the environmental performance derived from that adoption. While prior research has explored various drivers of firm environmental activity and the impact of that activity on firm performance, there is limited understanding of what drives variation in adoption between firms and how that variation impacts operational decisions. I focus my dissertation on these two questions and execute my investigation through three essays. In the first essay, I evaluate which stakeholders exert more/less influence on EMP adoption decisions. Using panel data from 2002 to 2013, which includes 880 firms, 258 industries, and 8 sectors, and Hierarchical Linear Modeling, I find that the passage of time, firm-unique choices, and industry membership explain 40%, 26%, and 34% of the observed variation between firms respectively. The results suggest that stakeholders which influence firms directly (firm - 26%), such as customers and investors, are almost as influential to EMP adoption choices as regulators, who influence firms through industry regulation (industry - 34%). The results highlight the important role non-regulatory forces play in motivating firms to increase environmental activity and their potential role in future efforts to motivate improved environmental performance. I next examine a new source of variation in EMP adoption, a spill or pollution (SP) controversy. Such controversies are increasingly common. Because EMP adoption directly drives environmental performance, understanding how firms respond to SP controversies (escalate or de-escalate adoption) is of importance to both society and regulators. Using a unique panel data from 2002 to 2013, I show that in the absence of a SP controversy, firms steadily adopt more EMPs each year. However, in the year following a SP controversy, they de-escalate adoption and this effect seems to persist for up to 3 years. I also observe that high sustainability firms do not de-escalate adoption following a SP controversy, highlighting the critical role of sustainability leadership to driving environmental performance. In the final essay, I investigate how poor environmental performance can impact firms in surprising, yet important ways. I specifically investigate whether experiencing an environmental controversy impacts a subsequent, seemingly-unrelated operational decision, the timing of a product recall. Using a panel dataset covering 2002 to 2013, which includes recalls from the five primary recalling industries (auto, pharma, medical device, food, and consumer products), and survival modeling, I find that experiencing environmental controversy, or more controversies, causes firms to postpone the product recall decision. This impact is consistent across each recalling industry. I also find that as the controversy ages, its impact on the recall decision diminishes, suggesting the recent controversies will have a greater impact on operational decisions than older controversies.