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Research Article

The Effect of Corporate Visibility on Environmental Performance

Kwon, Insu1 · Park, Heonjun2 · Shin, Hyeonhan2

1 Sejong University, 2 Yonsei University

Published: January 2007 · Vol. 36, No. 1 · pp. 113-132
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Abstract

This study investigates whether corporate visibility can predict corporate environmental performance. Previous studies recognize corporate visibility as an important factor affecting corporate environmental performance (among others, Bansal, 1996; Henriques & Sadorsky, 1996). However, few empirical studies examined the relationship between visibility and environmental performance. Firms with higher visibility tend to fall under greater institutional pressure. Therefore, we predict that firms with higher visibility yield higher environmental performance. More visible firms often become the center of public attention(Bansal, 1996; Edelman, 1990, 1992) and are exposed to greater institutional pressure (Oliver, 1991; Powell, 1991; Goodstein, 1994). Bansal(2000) asserts that visible firms should response to the needs and demands from the interested parties to gain social legitimacy. In other words, visible firms response more sensitively to social and political demands because they are under greater institutional pressure (Lee & Oh, 2002; Oliver, 1991; Goodstein, 1994; Ingram & Simons, 1995; Greenwood & Hinings, 1996). We hypothesize that a firm with bigger size, older age, more media exposure, greater advertisement expenses, and higher reputation exhibit better environment performance. Also we test whether Chaebol affiliated firms show better environment performance. Environmental performance scores have been collected from the Korea Economic Justice Institute (KEJI) for the period between 1996 and 2000(evaluation period). Financial data are collected from KIS-Line. We also classify firms into Chaebol affiliated ones and independent ones using KIS-Line. Firm age data and managers’ ownership data are from TS-2000 and media exposure is calculated as the number of articles published from 1996 to 2000 using KINDS. Finally, we use score data from Korea Management Association Consulting as firm reputation proxy. We first examine whether visibility proxy variables affect environmental performance scores. Considering the fact that firm size has a substantial influence on environmental performance, we see the relationship between visibility and environmental performance after controlling for firm size. We find that all six visibility proxy variables have a positive and strong effect on environmental performance. We interpret this result as evidence that more visible firms receive institutional pressure regarding environmental management and they response to it more sensitively than less visible firms. This study contributes the existent studies as follows. First, we use visibility variable as a predictor of environmental management. Even though firm size is used as an environmental management predictor, it has not been seen as a visibility proxy of a firm. We also use five other visibility variables: advertisement expenses, firm age, media exposure, reputation, and a variable telling whether or not a firm is affiliated with Chaebol. Environmental management is shown to have positive relations with all these variables, which indicates that the degree of institutional pressure is not only a function of firm size but also a function of various variables. This study has the following limitations. First, even though we use visibility as a predictor of environmental performance, we do not have a well-defined concept or theory on visibility. Therefore, theoretical study on how to define visibility and on how to measure visibility is necessary. Second, we have a measurement error problem in our visibility proxy variables. For example, we calculated the number of articles during a given time period as a proxy for the degree of media exposure. It is desirable to analyze the contents of each article for more accurate measure of media exposure. Also, we controlled for the motivation of CEO on environmental management using CEO ownership. But better approach to control for CEO’ motivation is to survey CEOs to see whether each manager has an incentive or motivation on environmental management(Basal, 2000).
Keywords: 기업의 가시성제도적 압력환경성과