Impact of environmental performance on financial performance: Evidence from korean supply contracts

Abstract

We examine the impact of corporate environmental performance on corporate financial performance through the announcements of supply contracts with customers. The empirical analyses using the Environmental Preservation Index and supply contract announcements prove that the likelihood of making a supply contract and the valuation effects of announcements are significantly lower for the firms with higher environmental performance, indicating negative relation between environmental and financial performance. The negative impact of environmental performance on the likelihood of making a contract appears to be spread out across firms with high environmental performance. Meanwhile, the negative impact on the announcement effects are mainly concentrated on the firms with the highest environmental performance. These findings are consistent with the tradeoff view and indicate that market recognizes corporate environmental activities as additional costs to firms. © Noolee Kim, Kyoung-Min Kwon, 2016.