This study examines the linkage between the profitability of firms measured by return on assets (ROA) and environmental performance measured by eco-efficiency and also the impact of a good environmental management system (EMS) on profitability and eco-efficiency of firms.
These environmental management practices were captured by the type of EMS a firm adopts that classified firms as either environmental leaders or environmental laggards. To achieve this panel data regression model with ROA as the dependent variable and eco-efficiency scores as the regressors was performed. The results suggest that there is a potential gain in the profitability of the firm by improving eco-efficiency in resource use. Furthermore, proactive firms are found to perform better than reactive firms in terms of profitability and eco-efficiency but firms that combine both proactive and reactive EMS perform even better, which shows the benefit of adopting commitment-based approaches alongside the compliance-based approaches to environmental management.
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