Maintaining stability while boosting growth? The long-term impact of environmental accreditations on firms' financial risk and sales growth

Abstract

Purpose

In this research, we examine the impact of ISO 14001, an international environmental management accreditation, on the long-term financial risk and sales growth of firms.

Design/methodology/approach

We employ a quasi-experimental design and construct 682 treated and control firms that are matched using propensity score matching. We then test our hypotheses using the difference in difference model.

Findings

We find that, although ISO 14001 leads to lower financial risk, standard management systems such as ISO 14001 actually hinder the sales growth of firms, an unanticipated outcome. In particular, this trade-off worsens over time, becoming particularly more severe among firms that adopt ISO 14001 early and operate in less-polluting industries.

Research limitations/implications

We present a hidden side of environmental accreditations, indicating a potential trade-off in the long-term efficacy of environmental standard management systems.

Practical implications

Firms must be cautious about adopting environmental management systems. Over time, a focus on environmental certification could potentially hinder firms' long-term growth. Firms should also be aware of certification timing and levels of industry pollution to resolve the tension in the trade-off.

Originality/value

This research is one of the first studies demonstrating that environmental accreditations result in a trade-off between reducing financial risk and improving sales growth.

Citation

Ye, Y., Yeung, A.C.L. and Huo, B. (2020), "Maintaining stability while boosting growth? The long-term impact of environmental accreditations on firms' financial risk and sales growth", International Journal of Operations & Production Management, Vol. 40 No. 12, pp. 1829-1856. https://doi.org/10.1108/IJOPM-05-2019-0407