understanding the impact of green operations on organizational financial performance: an industry...

Over the past few

years, public con-

cerns about the en-

vironment have led

to widespread inter-

est in the adoption

of sustainable prac-

tices by business or-

ganizations—as well

as how such practices affect businesses’ financial

performance—among both academic researchers

and industry practitioners. This interest is reflected

in the growing numbers of recent academic papers

that explore relationships between companies’

environmental operations and their financial per-

formance (Aragon-Correa, 1998; Kleindorfer, Sing-

hal, & Van Wassenhove, 2005; Rothenberg, Pil, &

Maxwell, 2001).

Linking “Green” Operations to Financial Performance

Some empirical evidence suggesting a positive

relationship between “green” operations and busi-

ness performance exists in the literature (Kassinis

& Soteriou, 2003). However, additional empirical

work is needed to clarify the nature of this relation-

ship (King & Lenox, 2002; Klassen, 1993).

Research regard-

ing the relationship

between firm finan-

cial performance

and environmen-

tal operations can

focus on categories

of environmental

operations such as:

• Green product and process development,

• Lean and green operations management, and

• Remanufacturing and closed-loop supply

chains (Angell & Klassen, 1999; Kleindorfer

et al., 2005).

However, in this stream of research, very few

examine the relationship between green opera-

tions and firm financial performance, and rarely

do they provide cross-comparisons between the

manufacturing and service industries. Thus far,

existing empirical studies have been limited either

Environmental Quality Management / DOI 10.1002/tqem / Fall 2014 / 45

© 2014 Wiley Periodicals, Inc.Published online in Wiley Online Library (wileyonlinelibrary.com)DOI: 10.1002/tqem.21379

Understanding the Impact of Green Operations on Organizational Financial Performance: An Industry Perspective

Measuring the financial effects of

“green” activities across manufacturing

and service industry sectors

Thomas Ngniatedema,

Suhong Li, and Abdou Illia

Thomas Ngniatedema, Suhong Li, and Abdou Illia46 / Fall 2014 / Environmental Quality Management / DOI 10.1002/tqem

to the manufacturing sector (Kassinis & Soteriou,

2003; Klassen, 1993; Klassen & Whybark, 1999)

or to the service sector (Foster, Sampson, & Dunn,

2000; Goodman, 2000; Kassinis & Soteriou, 2003).

Furthermore, very few of these studies found

empirical evidence that green practices play an

important role in influencing firm financial per-

formance. For example, Enz and Siguaw (1999)

and Schendler (2001) argue that successful en-

vironmental practices can improve customer

loyalty and employee satisfaction, reduce costs,

and enhance competitiveness. Kassinis and So-

teriou (2003), in their literature review of pub-

lished papers, which examines the relationship

between green operations and firm performance

in the service industry, found that most of the

studies that have been

conducted involved

manufacturing-based

case studies, and that

many of these papers

predominantly identi-

fied opportunities for

future research rather

than actual findings.

Trends in Exploring RelationshipsIn the past, numerous environmental frame-

works, cases, and concept papers have focused

on the manufacturing industry. Today, we are in

the midst of a service revolution that is rapidly

transforming industries and changing some of the

fundamental assumptions we have held regarding

business and economics. The service economy’s

contribution to gross domestic product is more

than 70% in the United States and other devel-

oped countries, whereas the share of employment

in services exceeds 80% in the United States and

continues to rise (Fitzsimmons & Fitzsimmons,

2004; Sasser, Olsen, & Wyckoff, 1978).

These trends imply that further research and

findings are needed to gain an enhanced perspec-

Today, we are in the midst of a service revolution that is rapidly transforming industries and changing some of the fundamental assumptions we have held regarding business and economics.

tive on and insights into the relationship between

green operations and firm performance, a rela-

tionship that is becoming increasingly relevant to

almost all organizational stakeholders. As high-

lighted by Li and Ngniatedema (2013), a firm’s

environmental performance and the impact of its

performance on a firm’s finances therefore present

tremendous research opportunities for traversing

the growing and changing gap in how environ-

mental issues uniquely and collectively impact the

value-adding process in both manufacturing firms

and service firms (Sasser et al., 1978). This gap was

acknowledged by Kassinis and Soteriou (2003) a

decade ago. These authors concluded that:

In practice, we know little about the

environmental impacts of most service

operations, how they can be managed, and

what impact the environmental practices

service firms adopt have on performance.

(Kassinis & Soteriou, 2003, p. 387)

The identification of this gap, acknowledged

and initiated by Ngniatedema and Li (2012) and

Li and Ngniatedema (2013), has prompted us to

investigate the relationship between green opera-

tions and financial performance of firms in both

manufacturing and service industry sectors to

provide a deeper understanding of the impact of

green operations on financial performance.

How This Article Is OrganizedThe article identifies three key categories

of businesses’ environmental or “green” opera-

tions or traits, which were used by Newsweek to

score U.S. businesses in 2010 (Newsweek, 2010a),

and that are important antecedents to a firm’s

financial performance. The authors then test the

impacts of these environmental operations, as

indicated by the 2010 scores, on organizational

financial performance during a two-year period—

the year the green operations were measured and

Environmental Quality Management / DOI 10.1002/tqem / Fall 2014 / 47Impact of Green Operations on Organizational Financial Performance

Environmental perspectives on business op-

erations have led to the use of differing ter-

minologies with varying scopes; however, the

term “green operations” has emerged from the

literature to describe both product- and process-

oriented environmental practices (Ferguson &

Toktay, 2006; Gilley, Worrell, Davidson, & El-

Jelly, 2000; Rogers & Tibben-Lembke, 2001; Tu-

tore, 2010) undertaken by businesses to reduce

the damage of products and supply chain pro-

cesses on natural resources (Dechant & Altman,

1994; Nunes & Bennett, 2010; Porter & van der

Linde, 1995a, 1995b).

Green Operations MetricsTo capture green

operations practices in

industry, it is common

for scholars of opera-

tions management to

use metrics to measure

those practices. This

seems reasonable be-

cause these metrics pro-

vide useful guidelines for firms willing to comply

with environmental regulations, reduce the risk of

legal fees, and avoid liability costs and fines (Hunt &

Auster, 1990). The metrics also help managers in the

decision-making processes related to business opera-

tions (Goodman, 2000).

Green metrics have been developed from

multiple research sources. Newsweek teamed up

with MSCI ESG Research, a leading source of en-

vironmental, social, and governance ratings, to

develop metrics that captured green operations

practices. In addition, Trucost, a firm that special-

izes in quantitative environmental performance

measurement, and CorporateRegister.com,

the world’s largest online directory of social re-

sponsibility, sustainability, and environmental

reporting, also contributed to the development of

these green metrics.

Newsweek teamed up with MSCI ESG Research, a leading source

of environmental, social, and governance ratings, to develop

metrics that captured green operations practices.

the following year. The use of a two-year period

allows us to evaluate the short- and long-term

impacts of the green operation.

In the next section, we review the literature

pertaining to environmental operations and prac-

tices as well as firm-level financial performance.

We then raise our research questions and present

a theoretical framework to explain the relation-

ship between green operations and the financial

performance of business organizations.

The empirical data that we used to test

our theoretical framework were collected from

Compustat, a database of financial, statistical,

and market information on active and inac-

tive companies throughout the world, and from

Newsweek, an information gatekeeper that en-

ables consumers to access a list of environment-

friendly companies.

Finally, after presenting the methodology and

analysis that we used in our study, we interpret

our findings, present conclusions, and outline

implications and future research.

Literature Review

Green OperationsDuring the past two decades, interest has

been growing regarding the effects of overall

environmental operations on the financial per-

formance of businesses. The scope of the research

having an environmental focus that we identified

ranged from green product and process develop-

ment to lean and green operations management

and to remanufacturing and closed-loop supply

chains (Bai & Sarkis, 2010; Corbett & Klassen,

2006; Klassen & McLaughlin, 1996; Lai & Wong,

2012). Some scholars also discussed the impact

of environmental operations on the costs and

on the quality of products (Atasu, Guide, & Van

Wassenhove, 2008; Kleindorfer et al., 2005), and

on a firm’s financial performance and pollution

reduction (Wong, Lai, Shang, Lu, & Leung, 2012).


Environmental Practices and Financial Performance

There is a growing body of literature regarding

the value to businesses and the environment of

implementing green operations as well as studies

regarding the financial implications for businesses

and for industry of green operations implementa-

tion (King, 2007; Min & Galle, 2001; Rothenberg

et al., 2001; Zhu, Sarkis, & Lai, 2007). The pre-

vailing view is that incorporating environmental

variables into firm’s operations often impacts costs

due to value-added activities, which, in turn, im-

pacts firm-level financial performance (Rao & Holt,

2005; Rothenberg et al., 2001). Although previous

work indicates a positive correlation between green

practices and corporate profitability within organi-

zations, these studies are scattered across different

literature streams, such as finance, corporate social

performance, economics, and accounting (Corbett

& Klassen, 2006). Conflicting results emerge from

the literature when the relationship between green

practices and financial performance is examined.

In one stream of the literature, research-

ers argue that when firms incorporated green

objectives into their operations, they incurred

back the costs previously transferred to society

(Beamon, 1999; Bragdon & Marlin, 1972; Chi-

nander, 2001; Friedman, 1962; Labuschagne,

Brent, & van Erck, 2005; McGuire, Sundgren,

& Schneeweis, 1988; Rogers & Tibben-Lembke,

2001). In addition, Walley and Whitehead (1994)

argue that corporate environmental initiatives

generate both unrecoverable costs and divert re-

sources from other productive investments. They

conclude that these initiatives are unsustainable.

This seems to suggest a negative relationship

between environmental practices and financial

performance (Corbett & Klassen, 2006; Min &

Galle, 2001). Indeed, Kiernan (2001) and Derwall,

Guenster, Bauer, and Koedijk (2005) show that

environmental performance and firm financial

performance are negatively correlated.

The three categories used by Newsweek to

assess environmentally responsible (green) prac-

tices among 500 publicly traded U.S. companies

and rank those companies by their scores are

“Environmental Impact score,” “Green Policies

and Performance score,” and “Green Reputation

score.” We provide brief definitions of these score

categories in the following paragraphs.

According to these sources, a company’s “En-

vironmental Impact score” was obtained using

more than 700 metrics, such as emissions to the

air, wastewater discharges, water and energy use,

and the like. This score is a key performance in-

dicator comprising 90% of a company’s environ-

mental footprint and 10% disclosure of the factors

that contribute directly

to that footprint.

The “Green Poli-

cies and Performance

score” is based on the

set of rules, policies,

and guidelines through

which businesses apply

their environmental ini-

tiatives throughout their operations as well as how

successful they are at pursuing their environmental

initiatives. This particular score was developed by

MSCI ESG Research using more than 70 individual

indicators in five categories (e.g., regulatory compli-

ance, lawsuits, and community impacts).

Finally, the “Green Reputation score” reflects

the public perception of a firm’s attitudes and ac-

tions toward environmental issues when manag-

ing its operations and product lines. This metric

was obtained from an opinion survey of corpo-

rate social responsibility professionals, academ-

ics, other environmental experts who subscribe

to CorporateRegister.com, and CEOs from all

companies listed in the Newsweek 500 publicly

traded companies in the United States (Newsweek,

2010a). Detailed procedure on how these variables

were measured can be found on newsweek.com.

The prevailing view is that incorporating environmental variables into firm’s operations often impacts costs due to value-added activities, which, in turn, impacts firm-level financial performance.


Counter to these studies, there is a general

belief that successful implementation of environ-

mental practices leads to superior financial per-

formance (Bowen, Cousins, Lamming, & Faruk,

2001; Christmann, 2000; Corbett & Klassen, 2006;

Handfield, Walton, Seegers, & Melnyk, 1997; Ko-

vacs, 2008; Lai, Cheng, & Tang, 2010; Porter &

van der Linde, 1995a; Russo & Fouts, 1997; Sarkis,

Zhu, & Lai, 2011). These studies agree with other

works because green practices have been found to

improve financial performance and enable firms

to compete effectively (Dao, Langella, & Carbo,

2011; Porter & van der Linde, 1995a; Rao & Holt,

2005; Reinhardt, 1999).

In the literature, some studies also relate en-

vironmental operations and practices to a firm’s

stock market performance, market valuation, and

competitive advantage (Corbett & Klassen, 2006;

Judge & Douglas, 1998; Konar & Cohen, 2001).

Other researchers also found environmental per-

formance to be positively correlated with the

intangible asset value of Standard & Poor’s (S&P)

500 firms as well as to a firm’s market value (Dow-

ell, Hart, & Yeung, 2000; Kiernan, 2001; Klassen

& Whybark, 1999; Labuschagne et al., 2005). In

addition, companies having higher scores on en-

vironmental criteria were found to realize stronger

financial returns than the overall market, whereas

poor green practices led to low market valuation

(Aragon-Correa, Hurtado-Torres, Sharma, & Garcia-

Morales, 2008; Estampe, Lamouri, Paris, & Bra-

him-Djelloul, 2013; Klassen & McLaughlin, 1996;

Konar & Cohen, 2001; Min & Galle, 1997; Nakao,

Amano, Matsumura, Genba, & Nakano, 2007).

Limitations of Available LiteratureThe aforementioned studies contribute signifi-

cantly to our knowledge in regard to the impacts of

environmental practices on a firm’s financial per-

formance; however, they have a common, major

weakness in that the results are often conflicting

or ambiguous, fostering an ongoing debate in the

literature (Corbett & Klassen, 2006; Derwall et al.,

2005; Klassen & Biehl, 2009; Russo & Fouts, 1997).

In addition, existing empirical evidence thus

far has been mostly limited to manufacturing

sectors (Klassen & McLaughlin, 1996; Kleindorfer

et al., 2005; Nakao et al., 2007; Tseng, Wang, Chiu,

Geng, & Lin, 2013). However, environmental

operations and practices have been shown to be

important components of service industry firms’

operations as well (King and Lenox, 2002; Ngni-

atedema & Li, 2012). Nonetheless, studies linking

green operations to financial performance for

both manufacturing and service industries remain

underexplored and are scarce (Dowell et al., 2000;

Kiernan, 2001; Klassen & Whybark, 1999). Indeed,

Kassinis and Soteriou

(2003) have long ac-

knowledged the need

for additional empirical

work to assess the re-

lationship between en-

vironmental practices

and firm-level perfor-

mance in the service in-

dustry. Although the studies by Pullman, Maloni,

and Carter (2009) and Jenkens, Suit, Lessell, Ham-

mer, and Ortigara (2011) link green operations to

financial performance in the service industry, and

works by Kiernan (2001) and Derwall et al. (2005)

reveal superior financial performance for firms with

better environmental performance across multiple

sectors, new research contributions are needed to

address the above-mentioned limitations.

According to Corbett and Klassen (2006), the

mixed results found in the literature are in part

indicative of the complex set of relationships

that underline the apparent linkage between en-

vironmental management and financial perfor-

mance. They argue that the relevant measures

must be multidimensional, particularly for en-

vironmental performance. Corbett and Klassen

(2006) added that environmental issues can affect

Companies having higher scores on environmental criteria were found

to realize stronger financial returns than the overall market, whereas

poor green practices led to low market valuation.


performance by increasing revenues through new

market opportunities, and that these effects can be

absolute. If this is the case, then in principle, the

effects can be measured by comparing performance

before and after the addition of the new market op-

portunities, thus the need for longitudinal studies.

Approach Used in This StudyIt is our contention that by jointly examining

the impact of environmental practices to firm-

level performance for both the manufacturing

and service industries using a longitudinal study,

we can make a substantial contribution toward

addressing the limitations found in earlier studies.

Using metrics and

concepts from Trucost

and CorporateReg-

ister.com (Environ-

mental Impact score,

Green Policies and

Performance score,

and Green Reputation

score), we examine the

linkage between green

operations and financial performance first in

each industry sector. We then use a compara-

tive analysis to examine these relationships in

the manufacturing and the service industries. To

measure financial performance, we use debt ratio

(DR), profit margin (PM), return on total assets

(ROA), market-to-book ratio (MBR), and inven-

tory turnover (ITO), which are recognized in the

literature as important dimensions of a firm’s fi-

nancial performance (Aragon-Correa et al., 2008;

Elsayed & Paton, 2005; Iwata & Okada, 2011;

Judge & Douglas, 1998; Kassinis & Soteriou, 2003;

King and Lenox, 2001; Konar & Cohen, 2001;

Labuschagne et al., 2005; Nakao et al., 2007;

Russo & Fouts, 1997; Sarkis & Cordeiro, 2001;

Schendler, 2001; Sharma & Vredenburg, 1998).

These performance measures are defined as

follows:

Using metrics and concepts from Trucost and CorporateRegister.com (Environmental Impact score, Green Policies and Performance score, and Green Reputation score), we examine the linkage between green operations and financial performance first in each industry sector.

• DR is the total debt over total assets.

• PM is used to measure the profitability of a

company and represents the net income over

the sales.

• ROA represents the net income over the total

assets.

• MBR represents the market price over the

book value.

• ITO is a measure of how often the company

sells and replaces its inventory and is the ratio

of cost of goods sold to average inventory.

Research FrameworkThe research framework guiding our investi-

gation is illustrated in Exhibit 1. We draw on

concepts from the interrelated literature streams

of environmental operations, environmental

practices, and corporate growth to propose a re-

search model that assesses a direct effect between

green operations and firm-level financial perfor-

mance in each industry sector. Our framework

suggests that firm-level performance is affected

by three green operations factors:

• Environmental Impact,

• Green Policies and Performance, and

• Green Reputation.

Other potential factors that may impact firm-

level financial performance are not included in

this study due to the limitations of the data.

Research MethodologyOur research focused on the top 500 publicly

traded companies in the United States in 2010

as identified by their levels of revenue, market

capitalization, and number of employees. The

green operations scores for each company were

obtained from Newsweek (2010b). Newsweek also

classified each company into one of 15 specific

industry sectors. The financial performance of

each company in 2010 and 2011 was obtained

from Compustat. Nineteen companies from the


Data Analysis and DiscussionIn this section, the differences between green

operations and organizational financial perfor-

mance in each industry sector will be discussed

first, followed by regression analyses to test how

green indictors impact financial performance

measures. To measure financial performance, DR,

PM, ROA, MBR, and ITO were examined in each

industry sector.

Green Operations by Sector in Manufacturing and Services Industry

Exhibit 2 shows that in the case of the man-

ufacturing industry, in 2010, the three highest

scoring sectors in regard to the Environmental

Impact category are technology, with a score of

72.54, industrial goods (57.27), and transport,

aerospace (55.95). In the Green Policy and Per-

formance category, the highest three sectors are

pharmaceuticals (56.32), technology (55.38), and

food and beverage (46.21). Finally, the three

sectors with the highest scores in the Green

Reputation category are technology (54.84), gen-

eral industrials (54.78), and transport, aerospace

(51.07). Analysis reveals that, according to the

initial sample size of 500 were dropped from

the study because of missing data in Compustat.

Thus, the sample size was reduced to 481.

Based on the sector classification scheme

used by Newsweek, the manufacturing industry

includes 10 sectors:

• Basic materials;

• Consumer products, cars;

• Food and beverage;

• General industrials;

• Industrial goods;

• Oil and gas;

• Pharmaceuticals;

• Technology;

• Transport, aerospace; and

• Utilities;

The service industry comprises five sectors:

• Bank and insurance;

• Financial services;

• Health care;

• Media, travel, leisure; and

• Retail.

This study used these classifications.

Exhibit 1. Research Framework


categories. However, it ranked the third from the

top among all manufacturing sectors based on its

Green Policy and Performance score. In addition,

industrial goods belonged to the bottom three list

both in the Green Policy and Performance and

Green Reputation categories, whereas it ranked

second from the top in regard to its Environmen-

tal Impact category score.

Among service industry sectors, Exhibit 2

shows that banking and insurance ranked at

the top of the list in the Environmental Impact

category and Green Policy and Performance

category. However, the banking and insurance

sector received the lowest score among service

industry sectors for Green Reputation. Similarly,

the health care sector has the highest score in the

Green Reputation category and the lowest score

in Green Policy and Performance. These results

indicate that a high score in one category of

green operations does not necessarily correlate to

a high score in another category.

2010 rankings, the technology sector led the

other manufacturing sectors in regard to green

operations variables as it is the only sector in-

cluded in the list of top three performers for all

three green operations categories.

Exhibit 2 also shows that within the manu-

facturing industry, the bottom three sectors

based on the Environmental Impact score were

food and beverage (10.14), utilities (13.11), and

basic materials (16.90). The bottom three sector

performers based on their Green Policy and Per-

formance scores were industrial goods (33.90),

oil and gas (35.83), and transport, aerospace

(37.73). Finally, in regard to Green Reputation,

the bottom three scoring sectors were food and

beverage (44.13), oil and gas (44.58), and indus-

trial goods (46.96).

The results show that food and beverage is

the bottom performer of all of the manufactur-

ing industry sectors, having the lowest score in

the Environmental Impact and Green Reputation

Exhibit 2. Green Operations by Industry Sector in 2010

Sector Number of Companies

Environmental Impact

Green Policy and Performance

Green Reputation

Manufacturing 306 42.76 43.35 49.44

Basic Materials 27 16.90 43.94 49.21

Consumer Products, Cars 32 46.27 40.16 50.69

Food and Beverage 27 10.14 46.21 44.13

General Industrials 31 45.11 39.24 54.78

Industrial Goods 41 57.27 33.90 46.96

Oil and Gas 29 32.55 35.83 44.58

Pharmaceuticals 16 51.90 56.32 48.18

Technology 49 72.54 55.38 54.84

Transport, Aerospace 22 55.95 37.73 51.07

Utilities 32 13.11 44.78 50.00

Services 193 63.75 39.92 44.09

Bank and Insurance 38 79.15 45.74 40.90

Financial Services 27 60.93 41.66 44.33

Health Care 30 66.28 28.79 46.78

Media, Travel, Leisure 42 52.04 40.02 46.06

Retail 56 60.33 43.40 42.39

Total 499 50.38 42.25 47.50


Green Operations and Financial Performance by Sector in Manufacturing Industry

A series of regression analyses was conducted

to identify how green operations, as indicated by

the scores published in Newsweek, impact finan-

cial performance measures such as DR, PM, ROA,

MBR, and ITO in each sector in manufacturing

industry. The results are shown in Exhibit 4.

The data show that the impact of green opera-

tions on financial performance is greater for the

consumer products, cars and the food and bever-

age sectors based on the number of significant

impacts in those two sectors. In the consumer

products, cars sector, the Environmental Impact

score had a negative impact on ROA and MBR

value, whereas the Green Policies and Perfor-

mance category score had a positive impact on

these two financial measures. However, those

significant relationships became nonsignificant

in the 2011 data. In the food and beverage s ector,

Financial Performance by Sector in the Manufacturing and Service Industries

Exhibit 3 shows that both the service and

manufacturing industries have very similar DR,

PM, and ROA in the years 2010 and 2011. Firms

in the service industry overall have higher ITOs

than those in manufacturing industry sectors.

Exhibit 3 also shows that the average MBR value

and ITO in the manufacturing industry sectors

have increased from the year 2010 to 2011,

whereas the average MBR value dropped greatly

among service industry sectors overall from the

year 2010 (7.87) to 2011 (2.68).

Exhibit 3 also reveals that the pharmaceuti-

cals and technology sectors have higher PMs and

ROAs than other manufacturing industry sectors.

On the other hand, in the service industry, the

financial services sector has a higher PM and ITO

than other service industry sectors for the years

2010 and 2011.

Exhibit 3. Organizational Performance by Industry Sector in 2010 and 2011

Year 2010 Year 2011

Sector DR PM ROA MBR ITO DR PM ROA MBR ITO

Manufacturing 0.25 0.09 0.07 2.84 14.02 0.26 0.09 0.07 5.05 15.34

Basic Materials 0.27 0.08 0.06 2.88 8.87 0.29 0.08 0.05 2.25 8.95

Consumer Products, Cars

0.26 0.06 0.07 3.83 7.33 0.27 0.07 0.08 0.35 7.75

Food and Beverage 0.33 0.11 0.10 1.22 6.47 0.35 0.10 0.09 25.84 7.52

General Industrials 0.25 0.05 0.05 3.31 7.83 0.26 0.05 0.04 1.79 7.96

Industrial Goods 0.21 0.07 0.06 3.15 12.99 0.22 0.08 0.08 5.26 13.51

Oil and Gas 0.20 0.12 0.06 2.13 15.69 0.21 0.08 0.05 2.06 18.73

Pharmaceuticals 0.23 0.16 0.09 2.95 2.02 0.26 0.17 0.09 3.30 2.15

Technology 0.18 0.13 0.08 3.07 21.01 0.18 0.12 0.07 2.71 29.21

Transport, Aerospace 0.20 0.08 0.07 4.41 43.84 0.21 0.08 0.08 5.32 43.76

Utilities 0.36 0.08 0.02 1.45 14.15 0.36 0.08 0.03 1.65 13.85

Services 0.24 0.09 0.05 7.87 32.06 0.25 0.10 0.05 2.68 33.07

Bank and Insurance 0.12 0.09 0.01 1.12 4.43 0.11 0.10 0.01 0.92 21.36

Financial Services 0.28 0.18 0.05 3.13 77.51 0.27 0.21 0.05 2.67 58.55

Health Care 0.25 0.08 0.07 2.82 22.90 0.28 0.08 0.07 2.57 24.85

Media, Travel, Leisure 0.37 0.06 0.05 29.56 48.36 0.38 0.08 0.06 1.26 53.93

Retail 0.18 0.05 0.08 2.69 7.12 0.20 0.05 0.08 5.99 6.68

Total 0.24 0.14 0.06 4.88 18.02 0.25 0.08 0.06 3.88 19.58


Impact score and the PM and a negative relation-

ship between the Green Policies and Performance

category score and the PM) are still significant

with a lower regression coefficient. The other three

significant relationships become nonsignificant.

The other significant relationships found in

manufacturing industry sectors were positive

relationships linking the Green Reputation score

and the ITO in the industrial goods sector; and a

the Environmental Impact score had a positive

impact on PM, whereas the Green Policies and

Performance category score had a negative im-

pact on PM and a positive impact on ITO. Finally,

the Green Reputation category score had a posi-

tive impact on PM and a negative impact on ITO.

Out of the five significant relationships, in

the year following 2010, two relationships (a

positive relationship between the Environmental

Exhibit 4. Regression Analysis by Sector in Manufacturing Industry in 2010 and 2011

Year 2010 Year 2011

Industry Section DR PM ROA MBR ITO DR PM ROA MBR ITO

Consumer Products, Cars

Environmental Impact Score

−.42** −.41**

Green Policies and Performance Score

.44** .33*

Green Reputation Score

Food and Beverage


.53** .47**


−.40** .52** −.36*


.31* −.45*

Industrial Goods




.42** .41**

Pharmaceuticals Environmental Impact Score

−.67** −.66**



Technology Environmental Impact Score

−.51**



Utilities Environmental Impact Score

.57** .55**



*Indicates a significant level at 0.10.

**Indicates a significant level at 0.05.

Note: Basic materials, general industrials, oil and gas, and transport, aerospace are omitted as no significant relationships are found.


2010. Here, the same relationships exist with a

stronger impact in 2011. The Green Reputation

score is negatively related to PM and ROA in both

2010 and 2011. However, in 2011, the impact of

the Green Reputation score had weakened.

In the retail sector for the year 2010, the En-

vironmental Impact score had a negative impact

on ROA, whereas the Green Policies and Perfor-

mance category score had a negative impact on

ITO. Finally, the Green Reputation category score

has a positive impact on ITO. The same impacts

exist for the year 2011, two with a higher and one

with a lower regression coefficient.

In the banking and insurance sector, the

Environmental Impact category score had a nega-

tive impact on ITO, and the Green Reputation cat-

egory score had a posi-

tive impact on DR for

the year 2010. These

statistically significant

relationships disappear

for the year 2011. In the

financial services sec-

tor, the Environmental

Impact category score

had a negative impact

on ITO and the Green

Reputation score had

a positive impact on

ITO. No significant re-

lationships were found for the year 2011. Finally,

in the media, travel, and leisure sector, the Envi-

ronmental Impact score had a negative impact on

ITO, and the Green Policies and Performance cat-

egory score had a negative impact on DR for 2010.

For the year 2011, the only significant relationship

found was the one between the Green Policies and

Performance score and DR.

In summary, it can be concluded that green

operations do have a significant impact on an

organization’s financial performance. However,

this impact is mixed and varies by industry

Out of the five significant relationships, in the year following

2010, two relationships (a positive relationship between

the Environmental Impact score and the PM and a negative relationship

between the Green Policies and Performance category score and

the PM) are still significant with a lower regression coefficient. The

other three significant relationships become nonsignificant.

negative relationship between the Environmental

Impact score and the ITO in the pharmaceuticals

sector. Also worth mentioning is a negative re-

lationship between the Environmental Impact

score and the PM in the technology sector, and

a positive relationship between the Environmen-

tal Impact score and ITO in the utilities sector.

Exhibit 4 also shows that these significant rela-

tionships either disappeared or that the strength

of those relationships decreased from year 2010

to 2011.

No significant relationships were found be-

tween the green operations categories and finan-

cial performance in sectors such as basic materi-

als, general industrials, oil and gas, and transport,

aerospace.

Exhibit 4 reveals that out of the five financial

performance measurements, green operations

likely have more impact on PM and ITO com-

pared with other measurements in manufactur-

ing industry sectors.

Green Operations and Financial Performance by Sector in Service Industry

Exhibit 5 shows that green operations mea-

sures have greater impact on the financial perfor-

mances of the health care and the retail sectors

than the other service industry sectors because

these two sectors have statistically significant re-

lationships between the green operations indica-

tor scores and financial performance measures. In

the health care sector, the Environmental Impact

category score has a negative impact on PM and

a positive impact on ITO in year 2010, whereas

the same relationships exist in the following year,

2011, albeit with a lower regression coefficient,

indicating that the impact had decreased from

the year 2010 to 2011.

In addition, Exhibit 5 also shows that in the

health care sector, the Green Policies and Perfor-

mance category score had a positive impact on

PM and ROA, and a negative impact on ITO in


In addition, the results also indicate that a firm’s

green operations during one year not only affect a

firm’s financial performance in that particular year,

but they can also impact financial performance

in the year that follows. However, the impact was

degraded over time except in the health care and

retail sectors. It is also interesting to note that no

new significant relationships appeared in 2011.

Conclusions and ImplicationsIn this study, we investigated the influence

of green operations on organizational financial

performance by sector, for both the manufactur-

ing and service industry for the top 500 publicly

sector. The Green Reputation score had a positive

impact on financial performance in the bank-

ing and insurance sector as well as the financial

services and retail sectors; however, it has a nega-

tive impact on health care and the media, travel,

and leisure sector. The Environmental Impact

score was found to negatively impact financial

performance except in the health care sector. The

Green Policy and Performance category score had

a negative impact on financial performance in

the media, travel, leisure sector, and the retail sec-

tor; no impact in the banking and insurance and

the financial service sectors; and a mixed impact

on the health care sector.

Exhibit 5. Regression Analysis by Sector in Service Industry in 2010 and 2011

Year 2010 Year 2011

Industry Section DR PM ROA MBR ITO DR PM ROA MBR ITO

Bank and Insurance


−.65**



.48**

Financial Services


−.71**



.76**

Health Care Environmental Impact Score

−.44** .63** −.34** .59**


.79** .57** −.72** .95** .79** −.73**


−.51** −.57** −.27* −.49**

Media, Travel, Leisure


−.28*


−.34* −.46**


−.51**

Retail Environmental Impact Score

−.29** −.36** .36**


−.55** −.46**


.53** .59**

*Indicates a significant level at 0.10. **Indicates a significant level at 0.05.


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traded companies in the United States. Green

operations was measured along three categories

comprising multiple indicators—Environmental

Impact, Green Policies and Performance, and

Green Reputation—whereas organizational fi-

nancial performance was measured by DR, PM,

ROA, MBR, and ITO. The results showed that the

impact of green operations on financial perfor-

mance varied by industry sector. For manufac-

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financial performance is most pronounced in the

consumer products, cars and the food and bever-

age sectors, whereas for service industry compa-

nies, green operations have greater impacts in

the health care and the retail sectors than in the

other sectors. The results also showed that the

impacts of green operations were mixed. Some

green category scores appeared to have had posi-

tive impacts on organizational financial perfor-

mance, whereas others had negative influences

on financial performance. In addition, the study

also reveals that the impact of an organization’s

green operations initiatives on financial perfor-

mance decreases over the year in most sectors.

One limitation of this study is the small sample

size composing each sector, which may have af-

fected the results. Future studies can be built upon

this work by increasing the sample size within each

sector. Future studies may incorporate other con-

textual variables (such as firm size, organizational

culture, environmental pressure, and the nature of

industry sector) so that the variation among indus-

try sectors can be explained in further detail. Fu-

ture study with data collected over multiple years

may also improve the findings from this work.

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Thomas Ngniatedema is an assistant professor of computer information systems (CIS) and analytics at Kettering University. He obtained his PhD in CIS from Kent State University and a master’s degree in industrial and systems engineering from Clemson University. His research interests include information systems architecture, mass customization, enterprise integra-tion, and strategies for operations and supply chain management. His research appears in journals such as the European Journal of Operational Research, the Journal of Computer Information Systems, the IAPQR Transactions, and many other outlets. He is a member of the Association for Information systems, INFORMS, DSI, and the SAP University Alliances.

Suhong Li is a professor of computer information systems (CIS) at Bryant University. She earned her PhD in information systems and operations management from the University of Toledo. Her research interests include supply chain manage-ment, adoption and implementation of information technology (IT) innovation in enterprises, electronic commerce, and mobile commerce. She has published numerous journal articles. Her research appears in journals such as the Journal of Operations Management, OMEGA, the International Journal of Management Science, Decision Support Systems, Journal of Computer Information Systems, International Journal of Production Economics, and International Journal of Operations and Production Management. She is currently a SAP certified associate and a member of Beta Gamma Sigma, Decision Science Institute, and the Association for Information Systems.

Abdou Illia earned his PhD in management information systems from Laval University, Canada. He is a professor at Eastern Illinois University. His research interests include factors influencing information technologies adoption, network security, and e-business. He has published numerous articles and book chapters in academic outlets, such as the Journal of Computer Information Systems, the Journal of E-Commerce in Organizations, Industrial Management & Data System, and the Encyclopedia of E-Commerce and E-Government.

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