Environmental performance and technical efficiency, is there a link?

Abstract

PurposeThe recent performance literature suggests that policies that enhance corporate environmental performance are more likely to lead to sustainable development, as these strategies are connected to superior technical efficiency. This paper aims to investigate the possible link between the environmental performance achieved by Greek listed firms and the level of their technical efficiency, using financial reporting information as a proxy for environmental performance.Design/methodology/approachData extracted from the financial statements of the most polluting firms listed in Athens Stock Exchange were used. An econometric framework based on stochastic frontier analysis was developed to estimate the probable linkage between the level of environmental performance, measured by environmental performance indicators (EPIs), and efficiency.FindingsThe empirical findings reveal that improved environmental performance is a potential source of competitive advantage leading to more efficient processes, improvements in productivity, lower costs of compliance and new market opportunities.Research limitations/implicationsThis research was based on corporate financial data coming from the firms listed in Athens Stock Exchange whose activities can be considered as environmentally harmful.Practical implicationsFrom the stock market investor's perspective, the combination of financial and environmental information can lead to decisions with prosper future growth, whereas regulating authorities and managers can adopt useful policies for sustainable development.Originality/valueIn this paper content analysis approach was used on financial and environmental reporting data to measure the level of corporate environmental performance. To the best of the authors' knowledge, this is the first study conducted with Greek firm level data that explores the relationship between EPIs and productivity, an issue which has not been lucidly investigated in the academic literature.

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