The impact of corporate environmental performance on market risk: The Australian industry case

Abstract

Prior research suggests that Corporate Environmental Performance (CEP) enables businesses to build strong corporate image and reputation, thus leading to improved firm financial performance. However, studies relating to the relationship between CEP and firm risk are scarce. This research intends to bridge the gap in the literature by examining whether CEP helps firms to reduce their financial risk. Results of the Ordinary Least Squares regression with fixed effects provide strong evidence that environmental performance is negatively associated with firm volatility and firm downside risk. The results are robust after controlling for moderating effects such as financial, institutional and environmental management.