Can environmental management improve financial performance: An empirical study of A-shares listed companies in China

Environmental management has external effects such that companies typically regard environmental input as a cost with no clear benefit. If the investment only leads to additional costs, companies will not take the initiative to achieve long-term environmental protection. Therefore, if environmental protection can bring economic benefits, indicating that environmental protection and economic interests are in harmony, companies will actively fulfill their responsibility to protect the environment. Thus, it is important to examine the relationship between corporate environmental management and financial performance. This paper examines the relationship between environmental management and financial performance of Chinese listed firms from 2007 to 2011. Results indicate that environmental management is significantly positively related to financial performance in the following year, implying that environmental management can significantly improve future profitability. However, as environmental investment consumes capital and resources, results indicate that environmental management is not significantly related to improved financial performance in the current year. In addition, this study examines the relationship between different environmental protection measures and financial performance, finding that two methods of environmental protection, “recycled harmful substances to the environment (Rec)” and “other methods to control pollution (Other),” positively impact future financial performance. However, these measures also do not have a significant impact on the financial performance of the current year.