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Article

Firm’s Environmental Expenditure, R&D Intensity, and Profitability

College of Business, KAIST, Seoul 02455, Korea
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Sustainability 2018, 10(6), 2071; https://doi.org/10.3390/su10062071
Received: 29 May 2018 / Revised: 14 June 2018 / Accepted: 15 June 2018 / Published: 19 June 2018
(This article belongs to the Special Issue Environmentally Sustainable Competitive Strategies)
In order to live up to its environmental responsibility, a firm makes an environmental expenditure to reduce its pollution emissions. Then, an important question is what impact the environmental expenditure has on the firm’s profitability. In this paper, we first propose and test a hypothesis that the more environmental expenditure the firm makes, the less profitability it enjoys, i.e., there is a negative relationship between the firm’s environmental expenditure and its profitability, more specifically its return on assets (ROA). We go further to suggest and test the second hypothesis that the more R&D-intensive the firm is, the lower the “negative impact” of the environmental expenditure on the firm’s profitability is, i.e., the firm’s R&D intensity moderates the negative relationship between firm’s environmental expenditure and its profitability. A significant implication is that since it has to spend money on reducing its pollution emission, the firm should also enhance its innovation capability. That is, by investing in its R&D, the firm can mitigate the negative impact of environmental expenditure on its profitability. In order to test the hypotheses, we collect financial data and carry out panel regression analyses. The analysis results support our hypotheses that there is a negative relationship between the firm’s environmental expenditure and its profitability and that the negative relationship is moderated by the firm’s R&D capability represented by its R&D intensity. View Full-Text
Keywords: environmental responsibility; environmental expenditure; ROA; R&D intensity environmental responsibility; environmental expenditure; ROA; R&D intensity
MDPI and ACS Style

Kim, T.H.; Kim, B. Firm’s Environmental Expenditure, R&D Intensity, and Profitability. Sustainability 2018, 10, 2071. https://doi.org/10.3390/su10062071

AMA Style

Kim TH, Kim B. Firm’s Environmental Expenditure, R&D Intensity, and Profitability. Sustainability. 2018; 10(6):2071. https://doi.org/10.3390/su10062071

Chicago/Turabian Style

Kim, Tae H.; Kim, Bowon. 2018. "Firm’s Environmental Expenditure, R&D Intensity, and Profitability" Sustainability 10, no. 6: 2071. https://doi.org/10.3390/su10062071

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