The debate on flexibility of environmental regulations, innovation capabilities and financial performance - a novel use of DEA

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Ramanathan, R., Ramanathan, U. ORCID: 0000-0002-7473-4643 and Bentley, Y., 2018. The debate on flexibility of environmental regulations, innovation capabilities and financial performance - a novel use of DEA. Omega, 75, pp. 131-138. ISSN 0305-0483

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Official URL: http://doi.org/10.1016/j.omega.2017.02.006

Abstract

Operational research models have been employed to understand development issues associated with environmental sustainability. This article describes a novel application of Data Envelopment Analysis (DEA) to help extend a specific debate in the literature on Porter’s hypothesis in environmental policy. The debate deals with the impact of flexibility of regulations on the relationship between innovation capabilities on financial performance in organisations. Using the resource based view of a firm, we hypothesise that relationship between innovation capabilities and financial performance in firms depends on how flexible or inflexible environmental regulations are. We apply DEA to capture the flexibility of environmental regulations. Our results indicate that innovation capabilities significantly influence financial performance of firms if firms feel that the environmental regulations they face are flexible and offer more freedom in meeting the requirements of regulations. On the other hand, corporations that feel that they face more inflexible regulations are not so effective in improving their financial performance with their innovation capabilities.

Item Type:

Journal article

Publication Title:

Omega

Creators:

Ramanathan, R., Ramanathan, U. and Bentley, Y.

Publisher:

Pergamon Press

Date:

March 2018

Volume:

ISSN: