The Effect of Environmental Management on U.S. Public Firms' Financial Performance and Equity Structure: A Longitudinal Analysis Using ISO14001.

摘要

This study investigates the long-term financial effect of environmental management as indicated by ISO14001 certification on firms' financial performance and equity structure. By employing event study methodology, this study examined 5,189 firms listed on the NYSE and NASDAQ. Among these firms, 331 received ISO14001 certification during 1996-2010, while only 174 firms had accurate dates of their first certification. These firms were used as the sample for this study. The long-term financial performance was measured by eight dependent performance variables (ROA1, ROA2, ROS (Return on Sales), Stock price, Tobin's Q, COGS (Cost of Goods Sold)/SALES, Sales growth rate, and SALES/ASSETS). The long-term effect of ISO14001 certification on the firm's equity structure was measured by four dependent performance variables (Assets, Liabilities, Debt ratio (Liabilities/Equity), and Market-to-book ratio of equity). The certified firms' performance was compared to that of the control firms based on three criteria (ROA, Assets, and z-value).;The results indicate that the profitability variables (ROA1, ROA2, ROS, Stock price, and Tobin's Q) showed immediate positive abnormal effects after firms applied for the certification, while the market benefit variables (Sales growth rate and SALES/ASSETS) showed gradual improvements after obtaining the certification. ISO14001 also showed a positive effect on the internal process improvement (COGS/SALES). Overall, ISO14001 was found beneficial to the firm in the long run from the perspectives of profitability, internal process improvement, and market benefits.;In terms of the effect on firms' equity structure, the results show that the adoption of ISO14001 increases a firm's total assets, liabilities, and debt ratio in the long run, implying that pursuing the certification entails an increase in a firm's size and equity risk. The long-term movement of market-to-book ratio of equity showed no abnormal performance, while it fluctuated in the short term. These results suggest that managers should consider the potential risk from a firm's equity structure when they decide to pursue the ISO14001 certification.