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The product‐market performance benefits of environmental policy: Why customer awareness and firm innovativeness matter

Abstract : Researchers have widely studied the nexus between corporate environmental (“green”) policy and its green performance and firm financial performance, but with mixed findings. A potential explanation for these mixed findings is the focus of extant studies on the direct and immediate impact of environmental performance on financial performance to the exclusion of firm-specific boundary conditions. Furthermore, all prior research study the effect of environmental performance on either stock market-based performance measures (i.e., stock return) or accounting-based performance measures (i.e., return on assets). A missing third dimension of firm performance, product–market-based performance (i.e., market share), has so far remained unexplored despite representing a crucial objective when innovating. Using Newsweek's annual green ranking as a novel measure of environmental performance for a panel of U.S. firms from 2010 to 2015, this paper attempts to fill these voids in the literature. The results show a positive relationship between firms' environmental performance and market share as a measure of product–market-based performance. The findings further demonstrate that this relationship is positively moderated by the level of customer awareness and innovativeness of the firm: The higher the level of awareness of a firm's environmental credentials and innovativeness, the stronger the effects of environmental performance on market share. Our results are robust against endogeneity concerns and alternative measures of firm financial and environmental performance.
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Submitted on : Friday, November 13, 2020 - 5:41:36 PM
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Mahabubur Rahman, Saqib Aziz, Mathew Hughes. The product‐market performance benefits of environmental policy: Why customer awareness and firm innovativeness matter. Business Strategy and the Environment, Wiley, 2020, 29 (5), pp.2001-2018. ⟨10.1002/bse.2484⟩. ⟨hal-03004777⟩



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