Firm's Environmental Expenditure, R&D Intensity, and Profitability

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In order to live up to its environmental responsibility, a firm makes an environmental expenditure to reduce its pollution emissions. Then, an important question is what impact the environmental expenditure has on the firm's profitability. In this paper, we first propose and test a hypothesis that the more environmental expenditure the firm makes, the less profitability it enjoys, i.e., there is a negative relationship between the firm's environmental expenditure and its profitability, more specifically its return on assets (ROA). We go further to suggest and test the second hypothesis that the more R&D-intensive the firm is, the lower the negative impact of the environmental expenditure on the firm's profitability is, i.e., the firm's R&D intensity moderates the negative relationship between firm's environmental expenditure and its profitability. A significant implication is that since it has to spend money on reducing its pollution emission, the firm should also enhance its innovation capability. That is, by investing in its R&D, the firm can mitigate the negative impact of environmental expenditure on its profitability. In order to test the hypotheses, we collect financial data and carry out panel regression analyses. The analysis results support our hypotheses that there is a negative relationship between the firm's environmental expenditure and its profitability and that the negative relationship is moderated by the firm's R&D capability represented by its R&D intensity.
Publisher
MDPI
Issue Date
2018-06
Language
English
Article Type
Article
Citation

SUSTAINABILITY, v.10, no.6

ISSN
2071-1050
DOI
10.3390/su10062071
URI
http://hdl.handle.net/10203/245942
Appears in Collection
MT-Journal Papers(저널논문)
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