ESG and Firm Performance: Focusing on the Environmental Strategy

Abstract

In this study, we investigate whether firms’ eco-friendly strategies affect their value. For the analysis, we study 210 firms in the Republic of Korea. These firms were listed on the Korea Composite Stock Price Index and the Korea Securities Dealers Automated Quotations during 2017–2021. We measure the dependent variable by return on assets, return on equity, and Tobin’s Q as firm value and use the ordinary least square estimation. The results show that firms’ eco-friendly strategies have a positive effect on firm value. Additionally, we examine the effect of eco-friendly strategies on performance by industry and by duration. In the nonservice industry, there is a positive effect of environmental strategy on firm value for a 5-year window, but not for a 3-year window. In the service industry, in contrast, eco-friendly strategies have no effect on firm value for the 5-year window but have positive effects for the 3-year window. In the robustness check, for the endogeneity issue, we perform a two-stage least squares analysis. This study demonstrates that environmental actions are reflected in firm value and that the performance varies by industry. Thus, these results provide critical insights for managers and policy makers who consider the environmental issues of firms.

1. Introduction

Environmental, social, and governance (ESG) management that emphasizes corporate social responsibility is spreading across the world. The fundamental factors driving companies to embrace the concept of ESG and start to implement it are probably the increased interest in social contribution activities themselves, government policies, and the judgment that ESG activities will have a positive effect on corporate performance. ESG activities are also part of new strategies attempted by companies that feel a sense of crisis, believing the management methods that have driven past performance can no longer guarantee future success. According to the point of view of international management, applying ESG activities abroad to exporting companies or multinational companies could also be seen as a long-term strategy to bring positive results to firm performance by overcoming foreign costs and securing social legitimacy.

In the Paris Agreement on Climate Change in 2015, 196 countries around the world agreed to try to limit the increase in global average temperatures to 2 °C or less compared to preindustrial times, and furthermore to limit them to 1.5 °C or less. Accordingly, each party sets a voluntary nationally determined contribution (NDC) every 5 years and submits a long-term development strategy (LEDS) for low greenhouse gas emissions to the United Nations Climate Change Office as a plan to implement the NDC. In the revised NDC submitted on 23 December 2021, the Republic of Korea proposed to reduce greenhouse gas emissions by 40% compared to 2018 by 2030. According to the contents of the LEDS, reduction of coal power generation, expansion of use of new and renewable energy, achievement of energy efficiency through technology development and innovation, expansion of clean energy use, reduction of waste, and expansion of recycling were suggested as strategies that can help achieve carbon neutrality in 2050 [1].

Among ESGs, environmental strategies to respond to climate change are becoming important indicators for judging corporate competitiveness. For example, the Dow Jones Sustainability Indices (DJSI) comprehensively evaluates corporate values using not only financial information but also social and environmental performance, and the evaluation results are disclosed annually. The 100% renewable energy (RE100) campaign is a private-level voluntary initiative to procure 100% of corporate-consumed power from renewable energy. This initiative was first proposed in 2014 by the British nonprofit groups the Climate Group and the Carbon Disclosure Project (CDP). Since its launch in 2014, as of 2022, 369 companies around the world have participated [2]. By region, European and U.S. companies have the most. By industry, manufacturing accounts for 20% (74), and nonmanufacturing accounts for 80% (295). Among South Korean companies, 19 joined the RE100, including Hyundai Motor Company, SK Hynix, and LG Energy Solutions, and South Korea showed the largest increase among member countries compared to 2021 (111% increase). The emergence of indexes such as DJSI and RE100 shows that institutional and economic conditions are being created that are inevitably difficult for non-eco-friendly business activities.

The results of studies on the effect of a company’s environmentally friendly management activities on the company’s financial performance are controversial. Companies’ eco-friendly activities send positive signals to stakeholders—and thus have a positive effect on performance [3]—but they do not affect their direct financial performance [4]. However, investment in eco-friendly strategies increases costs, which negatively affect firm performance [5]. Recently, however, the world has been actively participating in environmental protection activities, and governments have enacted strong environmental policies and enforcement ordinances to encourage companies to comply with them. As this trend has spread rapidly in recent years, companies are trying to switch to eco-friendly strategies early on. The Republic of Korea proposed a 26.4% reduction in greenhouse gas emissions in 2030 compared to 2018 in the 2020 NDC, but raised it to a 40% reduction one year later. This is the highest worldwide level, requiring reductions of more than 4% per year. Such policies may act as a burden on companies by accelerating the transition to environmental management—and thus may also have a negative impact on company performance.

Along with national policy, the competition intensity in the industry to which a company belongs is another external factor that can affect companies’ strategic execution. In this situation, the excess growth rate of a company will have a positive effect on the performance of the company as the company can strengthen its market dominance. In addition, excess growth can further invest in environmental strategies by providing companies with an opportunity to have financial slack resources. In addition, the value chain structure is different for each industry, the degree of environmental activities of a company will inevitably be differentiated, which will affect the company’s performance. Therefore, this study presents the following research questions: (1) How does the degree of a company’s eco-friendly activities affect the company’s financial performance? (2) When a company implements an eco-friendly strategy, does the excess growth have a significant moderating effect? (3) Are these effects different, depending on the industry?

To investigate the relationship between firms’ eco-friendly activities and corporate value, we conducted an empirical analysis using 210 listed Korean companies in the Republic of Korea stock market. As a result, we found that, the higher the degree of the eco-friendly strategies the company had, the more positive the company’s value was. We also found that the excess growth has a positive relationship with firm value. By industry, eco-friendly strategies between the service-related industry and the nonservice-related industry showed different results.

The contribution of this study is largely twofold: managerial and policy implications. First, in this study, we empirically proved that companies’ eco-friendly activities have a positive effect on their financial performance. Therefore, companies will strengthen their perceptions that the transition to eco-friendly strategies is an investment that can have new competitiveness and help them achieve higher performance rather than considering it a cost. In addition, it was found that the effect of eco-friendly strategies on corporate value varies depending on the industry and period. In particular, the eco-friendly strategy had a positive effect on the accounting-based performance ROA and ROE over the period of 5 years and 3 years. However, it was found that Tobin’s Q, a market-based performance, had no effect. However, in the analysis by industry, the environmental strategy in the nonservice industry had a significant effect on ROA and ROE in the 5-year window, and the environmental strategy in the service industry had a positive effect on all ROA, ROE, and Tobin’s Q in the 3-year window. Therefore, this study suggests that managers should attempt to convert to environmental strategies according to the industry to which their company belongs. In addition, policymakers are provided with insights on the need to adjust the timing and degree of transition to eco-friendly management according to the characteristics of the industry in imposing environmental laws to the firms.

The structure of the remaining parts of this study is as follows: Section 2 presents the theoretical background, reviews previous studies, and suggests hypotheses; Section 3 shows methodologies such as data sampling and explanations of variables; Section 4 outlines the results of the empirical analysis; and Section 5 summarizes the findings, examines limitations, and provides suggestions for future studies.

2. Theoretical Background and Hypotheses

Environmental, social, and governance, the three elements of ESG, are nonfinancial factors for ensuring the sustainable growth of a company. In the past, corporate values were evaluated by short-term or quantitative indicators, such as financial statements. However, the importance of the nonfinancial values of companies such as ESG has been increasingly emphasized due to the recent global climate change crisis, carbon neutrality problem, and the COVID-19 pandemic. The concept of ESG was first introduced through the United Nations Principles for Responsible Investment (UN PRI) enacted in 2006. Because the UN PRI announced that institutional investors should consider ESG factors in their investment process as a principle of responsible investment, the concept of ESG began to gradually expand. In other words, ESG is an index that evaluates companies’ sustainable management and can be viewed as an evaluation tool for socially responsible investment decision-making. ESG is similar to social responsibility in that it emphasizes corporate responsibility but focuses on economic value according to differences in the environment, society, and governance rather than social value.

2.1. Institutional Theory and Eco-Friendly Strategy

Institutional theory explains companies’ decision-making processes. It argues that securing legitimacy and social support from the institutional environment related to the company has a direct influence on companies’ strategy or structure. In other words, organizations are more successful when their existence can be recognized by various stakeholders as legitimate [6,7]. In institutional theory, organizations are assumed to take a passive attitude to coercive, normative, and imitative pressures to obtain social support from stakeholders, and the institutional environment is based on various interests such as the government, customers, competitors, investors, business partners, and nongovernmental organizations. It refers to the level of expectations based on the social norms and values of stakeholders [8,9]. Because these expectations place restrictions on the organization’s activities, the organization tries to select a structure and process that can satisfy the expectations of various stakeholders in the institutional environment.

Regulatory pressure on the environment can be referred to as the legal obligation for companies to produce, distribute, and sell their products. In other words, because of the global need for sustainable development and economic growth, environmental regulations are being continuously strengthened, and companies must secure legitimacy to increase their viability in the market. Eventually, this will require companies to comply with government regulations related to the environment. Accordingly, companies feel the need to increase awareness of the environment and encourage environmental innovation activities based on these incentives.

Table 1. Environmental Policies of Each Government.

Government	Contents
Republic of Korea	Korea enacted and promulgated the “Basic Act on Carbon Neutrality and Green Growth” on 24 September 2020, to convert to a carbon-neutral society. It is a law that contains legal procedures and policy measures to achieve the goal of “2050 carbon neutrality.” On 25 March 2022, the Enforcement Decree of the Framework Act on Carbon Neutral and Green Growth (hereinafter referred to as the Enforcement Decree) was implemented. This made Korea the 14th country to legislate the 2050 carbon neutrality vision. This enforcement ordinance includes the 2050 carbon-neutral vision and implementation system, greenhouse gas reductions, climate crisis adaptation and just transition, green growth, carbon-neutral finance, and the foundation for practice.
United States	In March 2022, the Securities and Exchange Commission (SEC) prepared a regulatory plan that mandates listed companies disclose information on greenhouse gas emissions and climate change risks. According to the SEC’s regulations, listed companies must disclose carbon emissions generated by the direct activities of companies, such as production (scope 1) and indirect carbon emissions generated through electricity, steam, and cooling purchased and consumed by companies (scope 2). In particular, the disclosure obligation of scope 3 (all carbon emissions from the value chain of companies, such as consumers, partners, and logistics), which was controversial, was imposed with a limit. It applies when listed companies judge scope 3 information as “significant information” to investors, or when the content is included in the company’s own greenhouse gas reduction goals [10].
European Union	The European Union (EU) announced the world’s first green taxonomy in June 2020. Green Taxonomy is a combination of green (meaning green industry) and taxonomy, and it defines the scope of environmentally sustainable economic activities. In other words, it is a green industry classification system that classifies which industries are eco-friendly industries and is used as a criterion for determining whether or not industries can receive green investment [11].

outlines the recent environmental policies of governments that serve as the basis for companies to obtain legitimacy by following regulatory values.

The environmental policies of each government must follow the relevant laws not only for companies belonging to the country, but also for overseas companies seeking to operate in the country. Therefore, companies must not only follow their own environmental policies, but also meet the host country’s environmental policies to seize investment opportunities and avoid threats to survival and growth. This trend is encouraging companies to transition to eco-friendly strategies, which will eventually affect their performance.

2.2. Eco-Friendly Strategy and Firm Performance

Environmentally friendly management activities are emerging as an important management strategy, coupled with global environmental conservation, green industry growth, and increased consumer interest in eco-friendliness [12,13,14]. As a solution to environmental problems, the importance of eco-friendly management has emerged in all fields, including manufacturing and service industries, and the eco-friendly management of companies affects corporate trust and corporate image.

From a traditional standpoint, corporate social activities are recognized as costs, and there is also an opinion where this negatively affects corporate value. Friedman (1966) [5] argued that “the goal of corporate social responsibility is to generate profits”. He mentioned that the goal of the social activities carried out by companies is to efficiently use resources and raise profits through autonomous competition, and that the cost of social activities should be minimized to maximize shareholder interests. Using corporate profits for social contribution activities is the same as distributing profits to shareholders elsewhere. Therefore, corporate social performance activities have a negative effect on management performance [15,16]. Wright and Ferris (1997) [17] reported that, in a study measuring the short-term performance of corporate value, investment in corporate social responsibility is recognized as contrary to maximizing shareholders’ wealth and is inevitably evaluated relatively low in the stock market. Schroder (2007) [18] stated that companies with high social performance had lower stock price returns than market returns and had higher risk in returns. Therefore, companies’ environmentally friendly behaviors can negatively affect their management performance [19].

Competitive advantage refers to the resources or capability of companies to effect superior performance compared to their competitors [20]. Eco-friendly activities are strategies based on an environmentally friendly approach aimed at generating profits while achieving organizational and personal goals. These activities can be resources and abilities to create competitive advantage. Adopting eco-friendly strategies allows companies to improve their corporate image by selling their environmentally friendly technologies or services. The company’s image is important because it reflects the way one organization can be distinguished from another. Because a corporate image includes associations, emotions, and attitudes formed in the beliefs and minds of consumers, their high interest in eco-friendliness and eco-friendly elements can be combined to build a positive corporate image. In addition, because it takes a long time to restore the damaged corporate image, the corporate image has actually become an important factor in companies’ activities, and environmentally friendly management has become one of the strategic factors forming this corporate image. Not only can eco-friendly strategies improve companies’ market reputation and external image, but they can also improve the organization’s management performance by generating high satisfaction and loyalty from consumers [21].

Eco-friendly strategies increase the efficiency of companies’ resource allocation and reduce their costs; thereby providing them with a competitive advantage. Through eco-friendly activities, companies can significantly reduce costs over the long term or enhance competition by using recyclable resources or minimizing waste of resources to improve resource efficiency and manufacturing processes [22,23]. Furthermore, due to the development of new ways to convert waste into sellable products that can generate additional sales, the discovery of new market opportunities can pave the way for companies to create competitive advantage [24].

In supply chain management, eco-friendly strategies also improve corporate performance. Eco-friendly supply chain management reduces waste and harmful gas generation and improves environmental performance by increasing regulatory responsiveness. At the same time, it can increase the opportunity to enter new markets and increase economic performance, such as market share and sales [25]. It also improves corporate performance through quality improvements and reduced lead time, and it prevents economic losses from environmental accidents [26].

Therefore, corporate eco-friendly management activities can be a critical factor in increasing corporate value by building a new brand image. In addition, cost reduction, prevention from risk exposure, and the creation of new opportunities allow companies to secure a continuous competitive advantage, despite various environmental regulations that are being strengthened. Therefore, eco-friendly strategies can be seen as an important determinant of competitive advantage in increasing corporate value, and the following hypothesis is thus proposed in this study:

Hypothesis 1.

Eco-friendly strategy has a positive effect on firm value.

2.3. Excess Growth and Firm Performance

Sales growth is one of the key factors in profitability and firm growth [27]. Sales targets are the beginning point of a firm’s planning [28], and “sales” is the word that top managers refer to the most [29]. A company’s sales performance is affected by both internal and external factors. Factors within a company include its capabilities of management, human capital, and governance. Therefore, high growth in sales can be interpreted as a result of the successful execution of a company’s business strategy [30]. External factors include political and macroeconomic factors, social norms, legal environments, and the behavior of competitors within the industry. Under this uncertain external environment, if a firm occupies a better market position than its competitors or occupies a greater market share, the firm can achieve better sales growth than its competitors or the industry average. Therefore, a high sales growth rate has a positive effect on the corporate value.

Growth in sales provides a number of benefits to companies. As a motivator within the organization, sales growth enables the promotion and retention of excellent employees and upgrades the production process by enabling investment in new equipment and technologies. If a company’s sales are good, the company can raise more money, which is needed for continuous growth or to enable investment in other areas, than a company with poor sales [31]. The growth in sales allows the firm to utilize its capacity to a higher level than before, which serves to further spread the fixed costs over profits; thus earning higher profits. Alternatively, if the industry to which a firm belongs increases the effect of economies of scale or learning curves, firms with high growth benefit from the effects, resulting in increased firm performance. In addition, depending on the industrial structure, sales growth provides additional market power to the firm, which improves the company’s performance. If a firm outperforms the industry’s average revenue growth—that is, if the firm outperforms its competitors—this excess growth increases the firm’s revenue. This will enable investors to make positive predictions about the company’s sustainable growth, which will have a positive impact on the company’s value [32].

The benefits of excess sales growth due to a company’s high growth rate can be explained by using the slack resource perspective in the resource-based theory. Slack resources generally refer to resources held by a firm beyond the resources necessary for day-to-day management [33,34,35]. Previous studies have defined slack resources in the following ways: potential resources are required to enable a strategic change in response to environmental changes and to adapt to policy changes [36,37]; the difference between the total number of resources a company has and the total number of resources required [38]; and a pool of resources required for a firm to run a business [35]. Regarding the role of slack resources, Levinthal (1997) [39] stated that a firm’s slack resources can enable the firm to make challenging strategic choices while also making the best choice in a complex competitive environment. Bourgeois (1981) [36] argued that slack resources have a buffering function that can resolve conflicts between companies and stakeholders, reduce risks to corporate performance in uncertain situations, and play a role in facilitating strategic actions, such as the introduction of new products and market development. A company’s slack resources can be divided into finance, human resources, operations, and customer relationship slack resources [40]. Excess growth due to a company’s high sales growth rate can help retain financial slack resources.

The situation in which government policies require companies to quickly shift to an eco-friendly management and consumer demand for eco-friendly companies is high can be perceived as external uncertainty. The transition to eco-friendly management and the implementation of eco-friendly strategies takes time and money. Properly allocating the available resources to the company maximizes the effectiveness of its operations and creates high profits. If a company’s available resources are used for a new strategy due to a change in the external environment, the company’s performance will decrease because it cannot use the resources for other necessary purposes. Conversely, if a company passively invests resources to adapt to the new environmental change, it will be difficult for the company to maintain a sustainable competitive advantage, which will result in a decrease in performance. Slack resources can reduce the loss to the firm’s present and future performance by giving much more discretion to the firm’s decision-making ability due to limited resources. A company can use resources flexibly through slack resources, the benefits resulting from the use of slack resources return to the company’s high performance, and the company can sustain a continuous competitive advantage. Therefore, financial slack resources from excess sales growth can be used for eco-friendly activities without sacrificing the use of other resources, allowing companies to adapt to environmental changes faster than its competitors. That is, slack resources provide an opportunity for firms to have environmental initiatives [41]. Thus, the financial slack due to excess growth will strengthen the eco-friendly activities of the company, which will have a positive effect on the company’s value.

Hypothesis 2.

An excess growth leads to higher firm value.

Hypothesis 3.

An excess growth strengthens the positive effect of eco-friendly strategies on firm value.

2.4. Eco-Friendly Strategy and Disparate Firm Performance by Industry

The international community’s efforts to realize carbon neutrality are spreading as interest in the climate crisis has increased since the COVID-19 pandemic. To achieve carbon neutrality, carbon emission reduction in the industrial sector must be accompanied by negative effects, such as cost increase in production and production decrease in the process. In particular, given that carbon emissions vary by industry, the negative impact of implementing carbon neutrality is expected to be differentiated by industry.

In particular, as the increase in production cost due to the imposition of carbon tax differs by industry, the demand for products and services is expected to decrease differently for each industry. The various degrees of decrease in production may cause changes in the industrial structure (the proportion of production by industry) as a result. Aldy and Pizer (2008) [42] analyzed the effect of production transfer due to the occurrence of carbon cost through empirical analysis using historical data, such as electricity cost, production, and consumption. When the carbon cost of $15/tCO₂ occurs, the average manufacturing decrease is 1.3%, of which 0.6% is due to consumption decrease and the remaining 0.7% is due to the effect of production transfer. Therefore, it can be expected that the proportion of production in the manufacturing industry will generally decrease when it experiences a large increase in producer prices.

Korea accounts for 2.1% of global energy consumption and is classified as a high energy consuming country. In particular, the proportion of energy consumption in the industrial sector is relatively high, showing a steady increase from 38.2% in 2000 to 42.4% in 2017 [43]. Because of this, the industrial sector’s greenhouse gas emissions account for 36% of the country’s total domestic greenhouse gas emissions. The reason the proportion of greenhouse gas emissions in the industrial sector is high is because of the nature of Korea’s industrial structure, which is centered on energy-intensive manufacturing.

One of the reasons that reducing greenhouse gas emissions in manufacturing is challenging is that the energy consumption characteristics of each industry are different. Fossil energy use in other sectors is mostly consumption as fuel, whereas in manufacturing, it is also consumed as a raw material to produce products. The use of fossil energy as fuel is expected to decrease in the industrial sector as the proportion of direct use of electricity and new and renewable energy gradually increases, resulting in decarbonization. However, the problem of replacing fossil energy consumed as raw materials still requires much technological development. Therefore, it is necessary to achieve energy efficiency via an eco-friendly strategy through active technology development to gain or maintain a competitive advantage.

The evaluation of environmental management may vary depending on the industry. In the case of Korea, the more environmentally sensitive the industry, the higher the level of CSR is required [44]. The effort to switch to an eco-friendly strategy through technological development and company investment is required more in manufacturing-related industries, and relatively little effort is required in nonmanufacturing industries. Thus, we predict that the performance of environmentally friendly actions will be different depending on the characteristics of the industry to which the company belongs, and we derived the following hypothesis.

Hypothesis 4.

A firm’s eco-friendly strategy has disparate performance by industry.

3. Methodology

3.1. Sample

To investigate the impact of a company’s environmental strategy on corporate value, we used corporate data from the Carbon Disclosure Project (CDP)’s climate field. This data provides assessment information of climate change, water security, forests timber, forests palm, forests cattle products, and forests soy for companies in more than 115 countries. Therefore, because this index shows values evaluated by global judges based on the same criteria for a company, if the company scores high in the index, it can be seen as having global competitiveness in the field. Of the 340 Korean companies recorded in this source, a total of 210 were eventually used by merging with the data of companies registered in the Korean stock exchange (Korea Composite Stock Price Index [KOSPI] and Korea Securities Dealers Automated Quotations [KOSDAQ]) during 2017–2021. For corporate financial information, we use FnGuide database. Of these, 116 (55.2%) were in the nonservice industry (manufacturing and construction), and 94 (44.8%) were companies in the service industry. Figure 1 shows the number of companies by category.

Figure 2 shows the number of companies by industry in more detail. More specifically, there are 112 manufacturing companies (53.3%); 3 in the fields of electricity, gas, steam, and air conditioning supply (1.4%); 4 in construction (1.9%); 15 in the wholesale and retail trade (7.1%); 6 in transportation and storage (2.9%); 20 in information and communication (9.5%); 22 in financial and insurance activities (10.5%); 24 in professional, scientific, and technical activities (11.4%); 1 for business facilities management and business support services for rental and leasing activities (0.5%); 2 for arts, sports, and recreation related services (1.0%); and 1 for membership organizations, repair, and other personal services (0.5%).

3.2. Variables and Measures

3.2.1. Dependent Variable

We used the firm’s value as a dependent variable, and we measured the firm’s value as return on assets (ROA), return on equity (ROE), and Tobin’s Q. As representative accounting-based performance measures, ROA and ROE are variables that are considered to reflect the efficiency of resource allocation more accurately than other accounting information [45,46]. Tobin’s Q represents market-based performance [47], and we calculated it as book value of assets minus book value of equity minus deferred taxes plus market value of equity over book value of assets [48].

3.2.2. Independent Variables

We measured firms’ eco-friendly strategy by using the climate index issued by the CDP [49]. This index is based on the opinions of investors from around the world about how much companies are contributing and making efforts to reduce climate change and carbon emissions. Specifically, according to the CDP, A and A− refer to the leadership level and denote companies that are taking the lead in tackling climate change and conducting eco-friendly management activities. B and B− can be classified as management level and are seen as companies that also recognize environmental issues as important. C and C− indicate awareness of climate change as a recognizing level. D and D− represent the state exposed to climate change at the disclosure level. F indicates when sufficient information is not provided. This shows companies are not in fact making climate change preparations. Therefore, companies that receive at least an A− level can be considered as companies that are well-prepared for climate change and use eco-friendly strategies. In contrast, companies with D or F levels have low corporate awareness and preparation for climate change. Therefore, as a measure of the company’s eco-friendly strategy, A is 9 points, A− is 8 points, B is 7 points, B− is 6 points, C is 5 points, C− is 4 points, D is 3 points, D− is 2 points, and F is 1 point. Because an environmentally friendly strategy may not be sufficient to directly affect the current performance [50], we used the previous year’s environmental activity value. The second independent variable is excess growth. We measured excess growth as the difference between a firm’s growth rate and the industry growth rate. A higher value of excess growth means the firm’s growth rate is greater than that of the industry.

3.2.3. Moderating Variables

The moderator variable in our study is to examine the effect of corporate excess growth on the relationship between eco-friendly strategy and corporate value. We calculated the moderating variable as the product of the eco-friendly strategy value and the excess growth.

3.2.4. Control Variables

We first look at the market share of the company as a factor that can affect firm value. A company’s large market share can provide positive signals to investors and consumers, which can have a positive impact on organizational value [51]. Conversely, if the market share of a company is low, this will send negative signals. We measure the market share of companies using the ratio of firm’s sales to the industry total sales. Second, the size of the firm affects the firm’s performance [52]. We measured firm size by the number of employees. Third, the age of the company can also affect the performance of the company. Long-established companies are better able to respond to external and internal uncertainties and risks because they have more experience and know-how in the market than new companies [53]. We measured it by the current year minus the establishment year. Fourth, corporate research and development (R&D) investment can have a positive effect on corporate value. If companies continuously invest in R&D, they can show their efforts for continuous innovation and future growth potential [54]. This variable was measured as the ratio of a company’s R&D expenses to sales. Fifth, we used the debt ratio. A high debt-to-equity ratio can negatively affect a company’s value [55]. The debt-to-equity ratio is the total debt divided by the total equity. Sixth, sufficient cash flow can have a positive effect on firm performance [56]. Therefore, we used cash flow from operating activities as a control variable.

3.3. Estimation

To test the effect of eco-friendly strategies on firm value, we used the following empirical models:

$$\begin{array}{l}Firm Value = \alpha 0 + \beta 1 Market share + \beta 2 R\&D investment + \beta 3 Cash flow + \beta 4 Debt ratio\\ \hspace{1em}\hspace{1em}\hspace{1em}\hspace{1em}\hspace{1em}\hspace{1em} + \beta 5 Firm size + \beta 6 Firm age + \beta 7 Eco\text{-}friendly strategy\\ \hspace{1em}\hspace{1em}\hspace{1em}\hspace{1em}\hspace{1em}\hspace{1em} + \beta 8 Excess growth + \beta 9 (Eco\text{-}friendly strategy \times Excess growth) + \epsilon \end{array}$$

Our final data set comprised panel data for 1029 observations with 210 firms over 5 years. For our methodology, we used ordinary least squares regressions. To adjust for this effect based on the differing units and sizes of each variable, we standardized all variables on the right side of the regression equation.

Further, we conducted the Hausman test to compare the fixed-effects model and the random-effects model. As a result, the null hypothesis was rejected, and we analyzed the results using a fixed-effects model. To control for individual characteristics of firm and year, we used firm and year dummy variables.

4. Results and Discussion

4.1. Descriptive Statistics

Table 2. Descriptive Statistics.

Variables	Observation	Mean	Standard Deviation	Minimum	Maximum
1. ROA	1029	1.26	0.94	0	3.99
2. Eco-friendly strategy	1029	0	0.97	−0.72	2.27
3. Excess growth	1029	0.02	1	−1.38	0.72
4. Market share	1029	0.36	1.36	−0.4	9.67
5. R&D investment	1029	0.01	0.36	−0.05	3.66
6. Cash flow	1029	−0.09	0.59	−2.81	2.79
7. Debt ratio	1029	0.21	1.14	−1.89	2.58
8. Firm size	1029	−0.13	0.52	−0.44	2.04
9. Firm age	1029	0.09	1.03	−1.46	2.98

and

Table 3. Correlation.

Variables	1	2	3	4	5	6	7	8	9
1. ROA	1
2. Eco-friendly strategy	−0.16	1
3. Excess growth	0.08	0.05	1
4. Market share	−0.13	0.22	−0.06	1
5. R&D investment	0.22	−0.11	−0.17	−0.10	1
6. Cash flow	0.12	0.1	−0.03	0.53	−0.04	1
7. Debt ratio	−0.59	0.27	0.07	0.22	−0.16	−0.07	1
8. Firm size	−0.18	0.19	−0.04	0.49	−0.10	0.26	0.18	1
9. Firm age	−0.18	0.09	0.06	0.18	−0.15	0.11	0.22	0.16	1

show descriptive statistics and correlations for all variables. We used variance inflation factors (VIFs) to check for multicollinearity. All VIFs were within the range of 1.02 to 2.47, and the average VIF was 1.47. If, generally, the VIF was 10 or less, the multicollinearity problem was judged to be insignificant [57]; thus, the multicollinearity problem does not appear in this study.

4.2. Main Results

Table 4. Effect of Eco-friendly Strategies on Firm Value.

	5 Years						3 Years
	ROA		ROE		Tobin’s Q		ROA		ROE		Tobin’s Q
VARIABLES	Model1	Model2	Model3	Model4	Model5	Model6	Model7	Model8	Model9	Model10	Model11	Model12
Market share	0.681 ***	0.677 ***	0.718 ***	0.710 ***	0.0512	0.0521	0.503 *	0.504 *	0.530 **	0.524 **	0.0454	0.0506
	(0.195)	(0.195)	(0.205)	(0.205)	(0.0334)	(0.0334)	(0.271)	(0.272)	(0.264)	(0.265)	(0.0428)	(0.0429)
R&D investment	−27.62 ***	−27.64 ***	−27.57 ***	−27.62 ***	0.0746 ***	0.0752 ***	−53.45 ***	−53.42 ***	−52.70 ***	−52.86 ***	0.0415	0.0446
	(3.668)	(3.670)	(3.941)	(3.938)	(0.0222)	(0.0223)	(9.672)	(9.710)	(9.585)	(9.620)	(0.0289)	(0.0289)
Cash flow	0.0801 *	0.0780	0.0822	0.0766	0.0100	0.0105	0.0581	0.0586	0.0797	0.0773	0.00807	0.0103
	(0.0476)	(0.0477)	(0.0504)	(0.0505)	(0.00955)	(0.00958)	(0.0572)	(0.0582)	(0.0557)	(0.0566)	(0.0107)	(0.0108)
Debt ratio	−0.511 ***	−0.511 ***	−0.205 ***	−0.203 ***	0.670 ***	0.670 ***	−0.382 ***	−0.382 ***	−0.0919	−0.0910	0.688 ***	0.687 ***
	(0.0691)	(0.0691)	(0.0728)	(0.0728)	(0.0113)	(0.0113)	(0.103)	(0.103)	(0.102)	(0.102)	(0.0161)	(0.0161)
Firm size	−0.0989	−0.0991	−0.395 *	−0.394 *	0.0132	0.0135	−0.127	−0.127	−0.370	−0.371	0.0505	0.0509
	(0.225)	(0.225)	(0.229)	(0.229)	(0.0339)	(0.0339)	(0.348)	(0.348)	(0.343)	(0.343)	(0.0671)	(0.0670)
Firm age	−0.0948	−0.0988	−0.114	−0.124	−0.00246	−0.00169	−0.0445	−0.0436	−0.0202	−0.0246	−0.0454	−0.0418
	(0.117)	(0.117)	(0.125)	(0.125)	(0.0242)	(0.0243)	(0.279)	(0.280)	(0.276)	(0.277)	(0.0535)	(0.0536)
Eco-friendly strategy	0.110 ***	0.109 ***	0.120 ***	0.117 ***	0.00171	0.00180	0.106 *	0.106 *	0.134 **	0.134 **	0.0134	0.0128
	(0.0377)	(0.0377)	(0.0401)	(0.0401)	(0.00751)	(0.00751)	(0.0572)	(0.0573)	(0.0564)	(0.0565)	(0.0107)	(0.0107)
Excess growth	0.119 ***	0.112 ***	0.123 ***	0.104 ***	0.00839 **	0.00968 **	0.132 ***	0.133 ***	0.132 ***	0.128 ***	0.00844 *	0.0120 **
	(0.0193)	(0.0226)	(0.0204)	(0.0241)	(0.00360)	(0.00420)	(0.0246)	(0.0298)	(0.0242)	(0.0293)	(0.00433)	(0.00516)
Eco-friendly strategy × Excess growth		0.0161		0.0411		−0.00310		−0.00163		0.00854		−0.00812
		(0.0262)		(0.0277)		(0.00519)		(0.0341)		(0.0337)		(0.00634)
Constant	0.271	0.270	1.077 ***	1.075 ***	−0.868 ***	−0.868 ***	−0.987 **	−0.986 **	−0.139	−0.146	−0.864 ***	−0.864 ***
	(0.174)	(0.174)	(0.187)	(0.187)	(0.00673)	(0.00673)	(0.444)	(0.446)	(0.441)	(0.442)	(0.00574)	(0.00576)
Observations	909	909	921	921	1,025	1,025	555	555	559	559	628	628
R-squared	0.237	0.238	0.193	0.195	0.819	0.819	0.250	0.250	0.249	0.249	0.822	0.823
Number of id	202	202	202	202	210	210	201	201	201	201	210	210
Id FE	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES

Note: Standard errors in parentheses (*** p < 0.01, ** p < 0.05, * p < 0.1).

shows the results using the full data. Models 1–6 show the results of corporate performance over a 5-year window, and models 7–12 show the corporate value over a 3-year window. Models 1, 3, 5, 7, 9, and 11 show the results for hypotheses 1 and 2. In hypothesis 1, we predicted that the eco-friendly strategy would positively affect the corporate value. In the results, the eco-friendly strategy was found to have positive and significant effects on the firm’s ROA (β = 0.110, p < 0.01) and ROE (β = 0.120, p < 0.01), but had no effect on Tobin’s Q. Therefore, hypothesis 1 was partially supported. These results were the same over the 3-year window. In hypothesis 2, we predicted that the excess growth of a firm would have a positive effect on the firm’s value. We found that the excess growth had a positive effect on the corporate value in all performances in the 5-year and 3-year windows. Therefore, hypothesis 2 was supported. Models 2, 4, 6, 8, 10, and 12 show the results of hypothesis 3. We hypothesized that the company’s high growth would have a positive effect on its value by allowing more investment in the transition to an eco-friendly strategy. However, the results were not supported, and hypothesis 3 was rejected. The company life cycle theory helped explain this result. During the life cycle, mature companies secure the most slack resources by securing stable profits and accumulating know-how; thus, the level of CSR activity will be active in the mature stage when resources are the most abundant [58,59]. During the growth period, CSR activities decrease because companies do not have the capacity to invest in CSR because they concentrate capital investment on increasing sales and expanding market shares.

4.3. Results by Industry

Table 5. Effect of Eco-Friendly Strategies on Firm Value: Nonservice Industry.

	5 Years						3 Years
	ROA		ROE		Tobin’s Q		ROA		ROE		Tobin’s Q
VARIABLES	Model1	Model2	Model3	Model4	Model5	Model6	Model7	Model8	Model9	Model10	Model11	Model12
Market share	2.053 **	2.102 **	2.307 **	2.287 **	−0.109	−0.0966	2.415 **	2.549 **	2.423 **	2.498 **	2.423 **	2.498 **
	(0.916)	(0.921)	(0.933)	(0.939)	(0.151)	(0.152)	(1.186)	(1.190)	(1.143)	(1.150)	(1.143)	(1.150)
R&D investment	−26.47 ***	−26.44 ***	−26.49 ***	−26.50 ***	0.0320	0.0345	−48.35 ***	−47.51 ***	−47.86 ***	−47.40 ***	−47.86 ***	−47.40 ***
	(4.108)	(4.112)	(4.188)	(4.193)	(0.0534)	(0.0535)	(11.08)	(11.09)	(10.68)	(10.72)	(10.68)	(10.72)
Cash flow	0.167 *	0.174 *	0.169 *	0.166 *	0.0110	0.0131	−0.00355	0.0174	0.0122	0.0241	0.0122	0.0241
	(0.0896)	(0.0907)	(0.0912)	(0.0924)	(0.0155)	(0.0157)	(0.115)	(0.116)	(0.111)	(0.112)	(0.111)	(0.112)
Debt ratio	−0.455 ***	−0.457 ***	−0.0464	−0.0458	0.597 ***	0.597 ***	−0.358 **	−0.376 **	−0.0219	−0.0319	−0.0219	−0.0319
	(0.101)	(0.101)	(0.103)	(0.103)	(0.0148)	(0.0148)	(0.166)	(0.166)	(0.160)	(0.161)	(0.160)	(0.161)
Firm size	−0.281	−0.293	−0.324	−0.319	0.0338	0.0328	−0.197	−0.220	−0.368	−0.381	−0.368	−0.381
	(0.311)	(0.312)	(0.317)	(0.318)	(0.0371)	(0.0371)	(0.497)	(0.497)	(0.479)	(0.480)	(0.479)	(0.480)
Firm age	0.0492	0.0532	0.0230	0.0215	−0.0160	−0.0148	0.0301	0.0673	0.0451	0.0656	0.0451	0.0656
	(0.156)	(0.156)	(0.159)	(0.159)	(0.0277)	(0.0278)	(0.361)	(0.362)	(0.348)	(0.350)	(0.348)	(0.350)
Eco-friendly strategy	0.136 **	0.138 **	0.157 ***	0.156 ***	0.00255	0.00312	0.0587	0.0600	0.0730	0.0737	0.0730	0.0737
	(0.0533)	(0.0535)	(0.0541)	(0.0543)	(0.00919)	(0.00922)	(0.0821)	(0.0820)	(0.0792)	(0.0793)	(0.0792)	(0.0793)
Excess growth	0.151 ***	0.161 ***	0.148 ***	0.144 ***	0.0137 ***	0.0161 ***	0.205 ***	0.231 ***	0.196 ***	0.210 ***	0.196 ***	0.210 ***
	(0.0283)	(0.0330)	(0.0286)	(0.0335)	(0.00465)	(0.00540)	(0.0359)	(0.0420)	(0.0344)	(0.0403)	(0.0344)	(0.0403)
Eco-friendly strategy × Excess growth		−0.0221		0.00866		−0.00575		−0.0553		−0.0308		−0.0308
		(0.0392)		(0.0396)		(0.00665)		(0.0476)		(0.0459)		(0.0459)
Constant	1.089 ***	1.102 ***	1.915 ***	1.910 ***	−0.856 ***	−0.853 ***	0.211	0.275	0.979 *	1.015 *	0.979 *	1.015 *
	(0.332)	(0.333)	(0.338)	(0.339)	(0.0457)	(0.0459)	(0.600)	(0.602)	(0.578)	(0.581)	(0.578)	(0.581)
Observations	515	515	518	518	566	566	315	315	316	316	316	316
R-squared	0.275	0.276	0.258	0.258	0.792	0.793	0.338	0.343	0.349	0.351	0.349	0.351
Number of id	114	114	114	114	116	116	114	114	114	114	114	114
Id FE	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES

Note: Standard errors in parentheses (*** p < 0.01, ** p < 0.05, * p < 0.1).

and

Table 6. Effect of Eco-Friendly Strategies on Firm Value: Service Industry.

	5 Years						3 Years
	ROA		ROE		Tobin’s Q		ROA		ROE		Tobin’s Q
VARIABLES	Model1	Model2	Model3	Model4	Model5	Model6	Model7	Model8	Model9	Model10	Model11	Model12
Market share	0.777 ***	0.778 ***	0.763 ***	0.765 ***	0.0800 **	0.0802 **	0.791 ***	0.752 ***	0.768 ***	0.729 ***	0.0667	0.0736
	(0.169)	(0.169)	(0.199)	(0.198)	(0.0358)	(0.0359)	(0.239)	(0.237)	(0.254)	(0.253)	(0.0508)	(0.0511)
R&D investment	−42.49 **	−43.36 **	−40.92	−42.24 *	0.0836 ***	0.0837 ***	−57.16 **	−63.32 **	−55.93 *	−61.43 **	0.0476	0.0524
	(20.81)	(20.78)	(24.99)	(24.92)	(0.0246)	(0.0247)	(27.57)	(27.38)	(29.80)	(29.75)	(0.0358)	(0.0360)
Cash flow	0.00146	0.00390	0.00517	0.00808	0.0130	0.0130	0.0551	0.0360	0.0813	0.0658	0.0157	0.0182
	(0.0494)	(0.0493)	(0.0582)	(0.0581)	(0.0123)	(0.0123)	(0.0572)	(0.0572)	(0.0606)	(0.0608)	(0.0145)	(0.0147)
Debt ratio	−0.599 ***	−0.599 ***	−0.412 ***	−0.407 ***	0.753 ***	0.753 ***	−0.393 ***	−0.395 ***	−0.134	−0.136	0.706 ***	0.707 ***
	(0.0868)	(0.0867)	(0.100)	(0.0998)	(0.0166)	(0.0166)	(0.114)	(0.112)	(0.123)	(0.122)	(0.0236)	(0.0236)
Firm size	−0.185	−0.208	−0.846 **	−0.866 **	−0.0825	−0.0823	−0.340	−0.317	−0.644	−0.633	0.0595	0.0566
	(0.344)	(0.344)	(0.353)	(0.352)	(0.0726)	(0.0727)	(0.511)	(0.505)	(0.546)	(0.542)	(0.134)	(0.134)
Firm age	−0.460 ***	−0.478 ***	−0.380 *	−0.406 **	−0.000829	−0.000526	−0.691	−0.715 *	−0.559	−0.577	−0.0925	−0.0934
	(0.170)	(0.170)	(0.204)	(0.204)	(0.0432)	(0.0434)	(0.426)	(0.421)	(0.459)	(0.456)	(0.110)	(0.110)
Eco-friendly strategy	0.0802	0.0807	0.0608	0.0628	0.00484	0.00479	0.183 **	0.197 ***	0.216 ***	0.228 ***	0.0400 **	0.0382 **
	(0.0495)	(0.0494)	(0.0578)	(0.0577)	(0.0120)	(0.0120)	(0.0737)	(0.0731)	(0.0785)	(0.0782)	(0.0181)	(0.0182)
Excess growth	0.0472 *	0.0263	0.0648 **	0.0328	0.00233	0.00267	−0.00194	−0.0505	0.0131	−0.0303	0.000409	0.00569
	(0.0243)	(0.0285)	(0.0284)	(0.0338)	(0.00550)	(0.00637)	(0.0305)	(0.0378)	(0.0327)	(0.0408)	(0.00723)	(0.00865)
Eco-friendly strategy × Excess growth		0.0450		0.0650 *		−0.000844		0.0920 **		0.0826 *		−0.0125
		(0.0324)		(0.0379)		(0.00794)		(0.0432)		(0.0468)		(0.0113)
Constant	−0.951	−1.003	0.0210	−0.0548	−0.996 ***	−0.996 ***	−1.766	−2.061	−0.789	−1.052	−0.970 ***	−0.973 ***
	(1.053)	(1.052)	(1.265)	(1.262)	(0.0192)	(0.0193)	(1.379)	(1.370)	(1.492)	(1.489)	(0.0282)	(0.0283)
Observations	394	394	403	403	459	459	240	240	243	243	280	280
R-squared	0.264	0.269	0.176	0.183	0.859	0.859	0.251	0.274	0.200	0.217	0.843	0.844
Number of id	88	88	88	88	94	94	87	87	87	87	94	94
Id FE	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES	YES

Note: Standard errors in parentheses (*** p < 0.01, ** p < 0.05, * p < 0.1).

show the effect by industry according to hypothesis 4. Table 5 shows the effect in nonservice industries. Environmental activities of nonservice firms showed a significant effect only on ROA and ROE in the 5-year window and did not show any effect in the 3-year window. All excess growth showed positive and significant effects in the 5-year period. Further, there was no moderating effect of the excess growth. Table 6 shows the results for the service industry. Eco-friendly strategies in the service industry have a positive and significant effect on the company’s performance, which was valid only for the 3-year period. This result contrasts with the results in the nonservice industry. In addition, the company’s excess growth is significant in ROA and ROE over the 5-year window. Moreover, the moderating effect of the excess growth had significant effects on the ROA and ROE over the 3-year period and on the ROE over the 5-year window. Therefore, we found that environmental strategies had different effects on firm performance in nonservice and service industries, and hypothesis 4 was supported.

4.4. Robustness Checks

We conducted the previous empirical analysis based on the expectation that an eco-friendly strategy would affect the corporate value. However, it cannot be ruled out that different financial characteristics among firms may have influenced environmental activities [60]. Therefore, additional analysis is required considering the inverse causal relationship.

Table 7. Two-stage Least Square Test.

VARIABLES	ROA		ROE		Tobin’s Q
	First Stage	Second Stage	First Stage	Second Stage	First Stage	Second Stage
Excess growth	0.00235	0.109 ***	0.00235	0.100 ***	0.00235	0.00964 **
	(0.0192)	(0.0227)	(0.0192)	(0.0242)	(0.0192)	(0.00420)
Eco-friendly strategy × Excess growth	0.0249	0.00965	0.0249	0.0323	0.0249	−0.00322
	(0.0239)	(0.0267)	(0.0239)	(0.0282)	(0.0239)	(0.00529)
Market share	−0.137	0.668 ***	−0.137	0.708 ***	−0.137	0.0525
	(0.156)	(0.196)	(0.156)	(0.205)	(0.156)	(0.0336)
R&D investment	0.00590	−27.55 ***	0.00590	−27.54 ***	0.00590	0.0752 ***
	(0.104)	(3.680)	(0.104)	(3.945)	(0.104)	(0.0223)
Cash flow	0.0937 **	0.0340	0.0937 **	0.0201	0.0937 **	0.00993
	(0.0447)	(0.0540)	(0.0447)	(0.0573)	(0.0447)	(0.0107)
Debt ratio	−0.0164	−0.499 ***	−0.0164	−0.188 **	−0.0164	0.670 ***
	(0.0523)	(0.0695)	(0.0523)	(0.0730)	(0.0523)	(0.0113)
Firm size	0.0992	−0.167	0.0992	−0.469 **	0.0992	0.0125
	(0.159)	(0.227)	(0.159)	(0.232)	(0.159)	(0.0349)
Firm age	−0.0449	−0.0724	−0.0449	−0.0941	−0.0449	−0.00131
	(0.0910)	(0.117)	(0.0910)	(0.125)	(0.0910)	(0.0242)
Lagged eco-friendly strategy	0.143 ***		0.143 ***		0.143 ***
	(0.0342)		(0.0342)		(0.0342)
Eco-friendly strategy expectation		0.537 **		0.674 **		0.00739
		(0.260)		(0.277)		(0.0521)
Constant	0.0343 **	0.282	0.0343 **	1.086 ***	0.0343 **	−0.868 ***
	(0.0142)	(0.174)	(0.0142)	(0.187)	(0.0142)	(0.00674)
Observations	1029	909	1029	921	1029	1025
R-squared	0.030	0.233	0.030	0.192	0.030	0.819
Number of id	210	202	210	202	210	210
Id FE	YES	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES	YES
Durbin (score) chi2(1)	0.543		0.771		0.020
p-value	0.461		0.380		0.889
Wu–Hausman F	0.537		0.762		0.019
p-value	0.464		0.383		0.889

Note: Standard errors in parentheses (*** p < 0.01, ** p < 0.05).

shows the results of the two-stage least squares (2sls) analysis considering the endogeneity between environmental variables and financial performance. In the first stage regression equation, we used the expected values of environmental variables estimated using the lagged eco-friendly strategy [61,62] to estimate ROA, ROE, and Tobin’s Q in the second stage regression equation. The instrument variable, lagged eco-friendly strategy, has a positive relationship with the environmental activities, but is independent of the error term. We conducted Durbin tests and Wu-Hausman tests to determine whether our model had endogeneity. As a result, none of the models failed to reject the null hypothesis, so endogeneity could not be determined in our model. Furthermore, as a result of using the Hausmann test to compare the effectiveness of the 2sls model and the fixed-effects model, the null hypothesis cannot be rejected, so we can prove once more that the fixed-effects model is more effective.

5. Conclusions

The global perception of environmental threats requires that companies change their behaviors, and the ways companies respond to these requirements affect their survival and performance. To maintain a sustainable competitive advantage, companies should adopt environmentally friendly strategies. The purpose of this study, therefore, is to investigate whether a company’s eco-friendly strategy affects its value.

According to the institutional theory, companies take environmental actions, which have a positive effect on their performance. Therefore, we investigated the impact of environmentally friendly strategies on the value of companies using information on companies from the Republic of Korea listed in global evaluation institutions. In measuring the value of a company, we used ROA and ROE, accounting-based performances, and Tobin’s Q, market-based performances. In addition, for the analysis periods, we used a 5-year and a shorter 3-year window. We also analyzed the industry by dividing it into nonservice and service industries. The results showed that the eco-friendly strategy has a positive effect on the accounting-based performance of a company in the pooled data but has no effect on the market-based performance. This was the case for the 5-year and 3-year windows. Second, in the nonservice industry, the eco-friendly strategy had a positive effect on accounting-based performance during the 5-year window but had no effect on market-based performance. Environmental activities had no effect on the value of the company during the 3-year period. Third, in the service industry, environmental activities had no effect on corporate performance in the 5-year window. Conversely, the results presented that the 3-year window had a positive effect on the company’s accounting-based and market-based performances.

From these results, we can draw some implications. Overall, we found that a company’s environmentally friendly activities affected its accounting-based performance, but this varied depending on the industry and the period. In the service industry, a company’s environmental activities affect its value for a shorter period than in the nonservice industry. We conclude that the transition to eco-friendly strategies in the service industry is relatively easier than in the nonservice industry. Further, the service industry is more of a customer-facing industry than the nonservice industry, which makes it easier to communicate with them. For example, in the hotel industry, firms make great effort to use eco-friendly strategies, and customers are easily aware of these efforts when they experience the company’s service. Therefore, service-industry companies’ current and future performances will benefit from quickly shifting to eco-friendly strategies with visible activities in a shorter time.

Conversely, in the nonservice industry, a company’s environmental activities have no impact over a short period of time, but in a longer period, they have a positive effect on its accounting-based performance. This is possibly owing to the nature of the nonservice industry. Unlike with service industries, in nonservice industries, such as manufacturing, it is time-consuming and costly to transition to eco-friendly strategies to meet the normative environmental standards required by governments or organizations, or consumer needs. Therefore, it does not appear as a market performance for a short period of time, but, as a result of a steady transition, it is seen in the accounting-based performance in the medium term. Therefore, managers will try to shift to environmentally friendly strategies steadily rather than in a hurry, helping the company’s development.

These results also provide insights to policymakers. Korea is trying to set high environmental standards in the world and cope with climate threats. The initiatives to make law and enforcement decree are certainly an important process for the future, but adjusting the degree of policy application, such as scope and duration, while considering the industries’ characteristics will reduce the burden on companies and eventually lead to better performance.

The contribution of this study is that the use of eco-friendly actions affects the value of companies, which is consistent with the results of existing studies. Furthermore, we provide new insights. The dataset used in this study was not a domestic one used in many Korean studies, but a dataset applied with global standards, which helped evaluate the global competitiveness of Korean companies. However, the limitation of this study is that not many Korean companies are evaluated by institutions that comply with global evaluation standards. Therefore, although all listed Korean companies are not included in the dataset, the results are consistent with existing studies and provide new perspectives, making it sufficiently representative. In addition, as more and more Korean companies are being evaluated by global institutions, future diverse studies, such as comparison between countries, will be possible based on the results of this study.