This dissertation prospectus compiles three studies that constitute the current state and direction of my doctoral research. This includes three empirical analyses focusing on business strategy in the context of the natural environment and environmental policy.
The first paper examines the relationship between environmental and financial performance. There has been a long-standing debate in the business strategy literature over whether firms can profit from improving their environmental performance. Recent studies suggest beyond compliance performance leads to increased profitability. However, there has been minimal theoretical or empirical examination of how emerging environmental issues, such as climate change, affect competitiveness. This raises important questions about the time horizon over which the environmental-financial performance relationship is evaluated. Furthermore, few studies have examined environmental strategies, such as green supply chain management, that extend beyond traditional organizational boundaries. Building on the resource-based view of the firm and a process-based view of environmental policy issues this study argues that the impact of environmental strategies on financial performance varies according to a short-term versus long-term perspective. This study is also one of the first to directly test the profitability of supply chain environmental strategies. This is achieved by leveraging novel longitudinal environmental impact data for over 1,000 US corporations from 2004 - 2008 to estimate the effect of direct and supply chain emissions on short- and long-term measures of financial performance. The results suggest that proactive environmental strategies to reduce life cycle GHG emissions may only be profitable over a longer time horizon.
Taking an exploratory approach, the second essay examines the dimensionality of environmental performance ratings and its relation to market valuation. The emergence of Socially Responsible Investing (SRI), has led to the development of a large number of methodologies for rating corporate environmental performance. Increased availability of information potentially generates an abundance of riches upon which to base investment decisions, but also raises issues of commensurability, information overload and confusion. Using data from three leading purveyors of environmental ratings, the study identifies the principle components of environmental performance captured by prominent methodologies. The results suggest that in large part, two distinct factors explain 80% of the variance of the data: the environmental processes and practices implemented by firms, and the environmental outcomes they generate. The study also shows corporate financial performance to be correlated to process measures but not to outcome measures.
The third and final essay examines corporate political strategies to confront issues of environmental policy. In 2008, an estimated $3.3 billion was spent on lobbying, the majority of which bankrolled by business, which are mostly perceived as opposing the government at the expense of the public. In this paper, we develop and test hypotheses on how firm performance on a salient political issue influences corporate political strategy. In the context of the recent climate change policy debate in the United States, we hypothesize a U-shaped relationship between greenhouse gas (GHG) emissions and two forms of political activity: lobbying and voluntary public disclosure. To test our hypotheses, the study leverages novel data on corporate GHG emissions, lobbying expenses aimed at climate change legislation and disclosure to the Carbon Disclosure Project. Our results suggest that both dirty and clean firms are active in the public policy process, which challenges the popular view that corporate involvement in the environmental policy process is solely adversarial.
