The nexus among top management, environmental and financial performance: A comparative study of China, Germany and Japan / Wu Qichun

Wu , Qichun (2022) The nexus among top management, environmental and financial performance: A comparative study of China, Germany and Japan / Wu Qichun. PhD thesis, Universiti Malaya.

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Abstract

The traditional business model is not adequately equipped to address sustainable development issues as the former focused purely on profits where performance is evaluated using financial indicators, such as sales, costs, and profits. Society is increasingly discouraged from sacrificing the environment for economic progress as excessive pollution is steadily making the world uninhabitable. Ever since the landmark Paris Accord in 2015, governments, corporations, and other interested bodies have been working together to seek sustainable development paths. The extant literature presents mixed findings (positive and negative between environmental and financial performance), thereby requiring fresh studies to produce reliable and consistent results. Several governments have already introduced regulations to reduce carbon emissions and even establish emissions trading mechanisms. Consequently, environmental and social strategies have become the new tools of business warfare in this context. Corporate board members and management are likely to play an increased policy-making role in the new business competition model. Hence, this study aims at examining the relationship between top management team (TMT), and corporate environmental performance (CEP) and corporate financial performance (CFP). To investigate the nexus among top management, environmental and financial performance, this study followed stakeholder theory and upper echelons theory and applies a positivist approach to understand the environmental and financial factors that critically impact on corporate performance and involve 621 public firms from 2010 to 2018 from Germany, Japan and China. Financial performance was estimated using return on asset (ROA), return on equity (ROE) and Tobin's Q, while the environmental indicators were emissions per sale, environmental, social, and governance (ESG) disclosure, and CSR strategy. The TMT characteristics are measured by Gender diversity, i.e., ratio of a female director and the female executive director, and independent director, and Environmental Committee. Major findings by the study are firms in Germany more likely to hire female directors and independent directors compared with firms in Japan and China. Most companies from Japan (81%) and Germany (68%) have set environmental committees, but only 29.2% of China's firms have an environmental committee. CEP is performed well in firms in Germany and Japan compared with firms in China. The TMT characteristics are beneficial for the CEP (ESG and strategy). The female and independent board director is beneficial for carbon reduction in China but weak and harmful in Germany and Japan. It is not helpful of the Environmental committee on the emissions reduction of firms. The long-term analysis results showed that emissions per sale positively impacts CFP in China's corporate performance, but it is the opposite and exhibits a negative relationship in Germany and Japan. ESG information disclosure positively impacted CFP in all three country samples, while CSR strategy negatively impacted CFP in all three country samples. The emissions per sale positively impacted ROA in the high emissions industries but negatively impacted ROA in low emissions industries. The TMT characteristics negatively impacted CFP in China, but positively impacted CFP in Japan and Germany. The econometric results showed the possible occurrence of different causality in different countries and in different industries pointing to a need for the use of more detailed differentiation of causality variables between countries and industries in future studies. The source of the sample will affect the results suggesting the possible variations between a middle-income country such as China, and high-income countries like Germany and Japan. This study discloses the financial benefits of the company's environmental protection, which will gradually appear in subsequent years, but do not become reflected in the current year's financial statements.

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