The Relationship between Environmental Management and Economic Performance: A New Model with Accumulated Earnings Ratio

Abstract

We empirically investigate the relationship between environmental management and economic performance using such data as environmental rating, credit rating, and accumulated earnings ratio of companies listed in the manufacturing sector on the first section of the Tokyo Stock Exchange. We performed a path analysis using two types of structural equation modeling: Model A with a terminal economic performance path and Model B with a terminal environmental management path. As a result, we found that Model B has better goodness of fit in the path analysis than does Model A. This is because it is natural to place the economic performance path before the environment management path since companies pursue profits for stockholders. We also confirmed that in Model B, the path from the accumulated earnings rate to environmental management has a significantly negative coefficient. This suggests that two groups of enterprises exist: profit-oriented and environment-oriented companies. Since our results are based on Japanese companies, it is advisable to investigate further to generalize the results worldwide.