Environmental risk management and the cost of capital
Article first published online: 11 APR 2008
Copyright © 2008 John Wiley & Sons, Ltd.
Strategic Management Journal
Volume 29, Issue 6, pages 569–592, June 2008
How to Cite
Sharfman, M. P. and Fernando, C. S. (2008), Environmental risk management and the cost of capital. Strat. Mgmt. J., 29: 569–592. doi: 10.1002/smj.678
- Issue published online: 11 APR 2008
- Article first published online: 11 APR 2008
- Manuscript Revised: 20 DEC 2007
- Manuscript Received: 26 JUL 2006
- environmental risk management;
- cost of capital;
- environmental performance;
- environmental strategy
Our study of 267 U.S. firms shows that improved environmental risk management is associated with a lower cost of capital. Our findings provide an alternative perspective on the environmental-economic performance relationship, which has been dominated by the view that improvements in economic performance stem from better resource utilization. Firms also benefit from improved environmental risk management through a reduction in their cost of equity capital, a shift from equity to debt financing, and higher tax benefits associated with the ability to add debt. These findings help build better theory regarding the outcomes of strategic improvements in environmental risk management. Copyright © 2008 John Wiley & Sons, Ltd.