Assessing the Impact of Formal and Informal Regulations on Environmental and Economic Performance of Brazilian Manufacturing Firms

Abstract

This study investigates the impact of formal and informal regulations on environmental and economic performance of Brazilian manufacturing firms. We adopt a dual approach where production technology is represented by a cost function, approximated by a translog form. Pollution is considered as a negative by-product that can be modified trough using either formal regulation (inspections or sanctions) or informal regulation (community pressure). A simultaneous equation model is estimated by three-stage least squares on a sample of 404 industrial establishments located in the state of São Paulo, Brazil. We show that pollution abatement costs for the Brazilian manufacturing sector are different from zero which suggests that pollution emissions are affected by environmental regulation. We also demonstrate that environmental performance of firms is jointly affected by formal and informal regulation. Lastly, formal regulation is largely influenced by informal regulation and more specifically by community pressure.

Environmental Regulation, Government R&D Funding and Green Technology Innovation: Evidence from China Provincial Data

“…Furthermore, Ma et al (2012) also supported the empirical findings [31]. Féres J. et al (2012) found that regulatory environmental regulation would inhibit technology innovation, while the governmental financial and policy support for enterprise innovation would increase the burden on enterprises [32]. Rooij et al (2013) pointed out that excessive government support inhibits social support, thereby reducing the potential for innovative benefits from voluntary environmental regulation [33].…”

Analyzing the Effect of Corporate Environmental Performance on Corporate Financial Performance in Developed and Developing Countries

“…Meanwhile, the weak formal regulation in developing countries exerts an important influence on firms, which adopt voluntary environmental strategies [9]. Thus, external stakeholders, such as professional and trade associations, academic institutions, supranational and national entities and industry initiatives [55], exert normative pressures in order to promote environmental values and norms of conduct that firms may voluntarily adopt, encouraged by non-coercive mechanisms such as public attention, peer industry pressures and the embarrassment of noncompliance [73].…”

“…The minimization of the environmental damages caused by business activity and the protection of the natural environment are signals of firms' environmental performance, and have received increasing attention from society, which require firms to reduce their negative impact on environment, contributing to sustainable development [9]. Thereby, firms are expected to decrease and control the consumption of natural resources and energy, and to reduce or eliminate the production of waste and pollutants during and after the production process; firms can also develop new environmentally friendly products that minimize their ecological footprint [7].…”

“…Sustainability 2017, 9, 1957 Acknowledgments: The authors thank the editor and three anonymous referees whose valuable suggestions and recommendations greatly improved the quality of this article. The English language of this manuscript has been revised by Sergio Manrique and Servei de Llengües-Universitat Autònoma de Barcelona (UAB).…”

Strategic responses of stigmatized Chinese manufacturing firms to formal and informal environmental regulative pressures through enhanced corporate social responsibility effort

“…Regulative pressures include both formal and informal pressures. Formal regulative pressures are exerted by authorities for regulating pollution emissions (Féres & Reynaud, : p3), which gain compliance by enacting laws, policies, and rules and create deterrence through punishment (Li & Ding, ; Liu, Ke, Wei, Gu, & Chen, ). Organizations are forced to assure compliance with the formal regulative pressures (Hoffman, ) and control their behaviors to obtain legitimacy (Lounsbury & Glynn, ).…”