Relationship among Environmental Performance, R&D Expenditure and Financial Performance: Evidence from Indian Manufacturing Firms

The study is conducted to analyse the effect of environmental performance on the financial performance of 67 Indian manufacturing listed companies, categorized into most polluting and least polluting companies for the period of 7 years i.e. from 2014-15 to 2020-21. The present study has employed environmental performance as independent variable measured by various environmental performance measures. The content analysis has been conducted to estimate the environmental performance scores. The study covers both measures of financial performance, i.e. accounting-based measures (Return on Equity) and market-based performance measures (Market to Book value ratio) as dependent variables. The control variables used in the study are ownership structure (promoter ownership, institutional ownership and foreign ownership), firm size, leverage ratio, firm age and sale to asset ratio. By using the feasible generalized least square method, the study found a positive association of environmental performance with financial performance of both categories of companies. In contrast, an adverse effect of research and development expenditure on performance has been observed. The study witnessed the moderating impact of research and development expenditure on the relationship between environmental and financial performance. The study found the mixed effect of ownership structure on the financial performance of manufacturing companies.