This research project explores the relationship between environment strategies and financial performance in real estate firms. Our hypothesis is that the two should not be consider as either allies or adversaries, but are, in fact, connected by a curvilinear link.
From natural resource scarcity and global warming to carbon emissions and prolonged haze pollution, environmental deterioration is a growing problem. As a result, environment strategies have emerged as a priority for business sectors, at least rhetorically. The literature has also pointed at the positive effects of corporate social performance on financial performance in general. However, the conventional wisdom of business sectors concerning their contribution to environmental protection is that the additional costs involved may erode financial performance. Real estate developers also face a similar concerns, as there is a widespread perception that it is difficult to make a profit if developers intend to 'go green'. On the other hand, some researchers are equally convinced that going green can lead to better financial performance.
In short, the implementation of environmental strategies in the business sector is slowed down by the lack of an empirically founded, plausible, theoretical model to understand how they affect a firm’s financial performance. Resolving this issue requires a better understanding of the interrelationship between Environment Strategies (ES) and Financial Performance (FP). That is, are ES and FP allies or adversaries?
In order to advance this long-standing and contentious debate both theoretically and empirically, this study will hypothesize a curvilinear relationship between environment strategy and financial performance for real estate business sector. In other words, we will investigate whether the two long-competing viewpoints (allies or adversaries) may be complementary. In this proposal, it is therefore hypothesized that, as real estate developers adopt more environment strategies, their financial returns will decline at first (in the short term), but then rebound as the environment strategies are increasingly adopted (in the long term).
Based on this hypothesis, the project pursues two objectives:
- to model the link between ES and FP from the analysis of longitudinal industry data;
- to test the ES-FP model empirically in the real estate business sector.
To this end, we will carry out research within the real estate business context based on a dataset of the annual reports, corporate social sustainability reports and global reporting initiatives of the 208 publicly traded firms in China from 2006 to 2014.
The research has the potential to have a great impact, both scholarly and in the praxis. The suggest theoretical model may provide new answers in the examination of the conditional effects of ES on FP. Testing the ES-FP link using longitudinal data of real estate firms has not been done before. In addition, the proposed ‘beyond dichotomy’ research approach represents a methodological advancement on previous similar studies that adopt an either ‘non-longitudinal’ or ‘subjective’ approach to data collection. In this regard, it may offer original academic value. Practically, it could help solve the dilemma between government intervention and market value maximization by alerting business leaders to the benefits of implementing proactive environment strategies of their own (e.g., real estate developers mainly opting for green buildings).
GRF 2015-16 by Dr. Zhang Xiaoling