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Environmental Management and Firm Competitiveness:The Joint Analysis of External and Internal ElementsMaría D. López-Gamero, José F. Molina-Azorín

The impact of proactive environmental management on the competitiveness of a firm is the subject of an ongoing debate, and a reviewof the existing literature provides no clear conclusion, and, at times, conflicting results. In this paper, we advance the understanding of this relationship through a joint analysis of external (voluntary norms and stakeholders) and internal factors (firm resources), examin-ing their influence on proactive environmental management and whether firms that adopt proactive environmental management achieve

competitive advantages in costs and differentiation. Drawing on a data set of 208 firms, this paper fills gaps in the extant literature onthe potential for using a contingent approach integrating external and internal aspects. Thus, this work addresses an important gap bypresenting a multi-theoretical approach combining two theories, institutional theory and the resource-based view, to recognize the widerinfluencing factors impacting on environmental management, and showing that those theories are complementary rather than mutuallyexclusive. We provide managerial implications that can guide managers in their choice of approach, as a way to contribute to the com-petitive advantage of their firms.

© 2015 Elsevier Ltd. All rights reserved.

Introduction

The impact of environmental management on firm competitiveness is the subject of an ongoing debate ( Aragón-Correaand Rubio-López, 2007). Theoretical and empirical literature on the influence of environmental management on firm

competitiveness reveals inconclusive and even conflicting and contradictory evidence, as there are studies that considerthat environmental management has positive impacts on competitiveness (González-Benito and González-Benito, 2005;Wahba, 2008) while other works have not found this positive relationship (Hull and Rothenberg, 2008; Link and Naveh,2006).

On the one hand, environmental management may improve firm competitiveness. In this regard, environmentalmanagement has important connections to strategy and competitiveness (Aragón-Correa, 1998). This positive influence of environmental management on competitiveness may be examined through its impact on costs and differentiation(González-Benito and González-Benito, 2005). Proactive environmental management may allow the firm to save on costs,inputs and energy consumption (Hart, 1997; López-Gamero et al., 2009). The notion of eco-efficiency implies the produc-tion and development of goods while simultaneously reducing environmental impact (Starik and Marcus, 2000). Pollutionis seen as a sign of inefficiency (Porter and van der Linde, 1995). Regarding differentiation, by reducing pollution, it may bepossible to increase demand from environmentally sensitive consumers, whose purchase decisions are influenced by aproduct’s environmental features (Elkington, 1994; Galdeano-Gómez et al., 2008). A firm with good environmental initia-

tives may enhance its environmental reputation (Miles and Covin, 2000), and firms adopting proactive environmentalstrategies may benefit from higher prices and increased sales because of their greater legitimacy. From an empirical pointof view, there are many studies that have found this positive relationship (Al-Tuwaijri et al., 2004; Melnyk et al., 2003;Wahba, 2008).

On the other hand, this positive approach coexists with a negative perspective, according to which environmental man-agement may reduce a firm’s competitiveness and performance. From this point of view, it is suggested that complying withenvironmental laws entails high costs, which harm a firm’s ability to compete ( Jaffe et al., 1995). In addition, those whofollow this negative view respond to those supporting the positive perspective by pointing out that, although cost savingsmay be easily obtained by adopting a few preventive measures, more ambitious prevention practices imply costs that exceedany savings that might be derived from them (Walley and Whitehead, 1994). Thus, this perspective suggests there is a neg-ative relationship between environmental management and firm competitiveness. When firms try to improve theirenvironmental performance (environmental impacts) by withdrawing resources and managerial effort from other key areas,

http://dx.doi.org/10.1016/j.lrp.2015.12.0020024-6301/© 2015 Elsevier Ltd. All rights reserved.

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Please cite this article in press as: María D. López-Gamero, José F. Molina-Azorín, Environmental Management and Firm Competitiveness: The Joint Analysis of

External and Internal Elements, Long Range Planning (2015), doi: 10.1016/j.lrp.2015.12.002

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then an important consequence is lower profits. According to this analysis, managers cannot invest in the environment andbe more competitive at the same time (Hull and Rothenberg, 2008). Moreover, there are many empirical works where anegative relationship exists, or where no statistically significant relationship emerges (Link and Naveh, 2006; Wagner et al.,2002).

Regarding these inconclusive findings, Aragón-Correa and Rubio-López (2007) emphasize a key aspect that may help toexplain these conflicting results. These authors strongly advise avoiding the temptation to apply general prescriptions tothe analysis of proactive environmental management1 and its linkage with competitiveness. They recommend using a con-tingent lens, as environmental management demands a specific analysis of each firm and its business context. Managersmust pay very specific attention to both the external context (e.g., voluntary norms and the role of stakeholders) and theinternal situation (e.g., firm internal resources) before making individualized decisions about the appropriate environmen-tal approach. Examining only the influence of one aspect (external context or internal situation) on proactive environmentalmanagement supposes that the full range of antecedents of this level of environmental management proactivity may notbe identified. This issue can lead to an incomplete explanation of the determinants of proactive environmental manage-ment and its impact on firm competitiveness. Therefore, it is interesting to look at both internal and external factors asantecedents of proactive environmental behavior.

There are theoretical studies that emphasize this contingent approach and the need for a joint analysis of external andinternal factors (Aragón-Correa and Rubio-López, 2007; Aragón-Correa and Sharma, 2003; Hart, 1995). However, to the bestof our knowledge, no empirical study has jointly examined the influence of external and internal elements on proactiveenvironmental management, and the impact of the latter on firm competitiveness. Some papers have analyzed specific ex-ternal factors, such as regulation and competitive forces (Aragón-Correa, 1998; Christmann, 2000). Other papers have studiedthe influence of stakeholders exerting institutional pressure on firms (Delmas and Toffel, 2004). Still other studies have focusedon the management level, examining the attitudes of managers (Sharma, 2000). Some papers have used the internal char-acteristics of the firm to explain the adoption of proactive environmental management (Sharma, 2000; Sharma et al., 1999).While each approach has provided a piece of the puzzle, there is still a lack of understanding of the joint influences of ex-ternal and internal elements.

Our study addresses this important gap in the literature. The joint analysis of external and internal aspects and theirinfluence on environmental management is an interesting and relevant research issue, both for academic research (as this joint analysis may shed light on previous conflicting findings), and for management practice (as managers need to knowthe appropriate level of proactive environmental management taking into account external and internal aspects).

The main purpose of this paper is twofold. First, we analyze the influence of external and internal elements on proac-tive environmental management. Specifically, we study the impact of two external elements, namely, voluntary norms andstakeholders, together with the firm’s internal resources. Second, we examine the impact of this proactive environmentalmanagement on firm competitiveness through its influence on cost and differentiation competitive advantages.

From this perspective, we try to answer the following key questions:

1) Does the development of voluntary norms influence the proactivity of a firm’s environmental management?2) Does the degree of pressure exerted by stakeholders and the degree of collaboration with them influence the proactivity

of a firm’s environmental management?3) What kinds of firm-level resources and capabilities might influence proactive environmental management?4) To what extent can proactive environmental management enhance a firm’s competitiveness?

This paper contributes to the literature in several respects. First, since previous studies present a partial view of the impactof factors that influence proactive environmental management, our paper uses a multi-theoretic approach incorporatingthe institutional theory and the resource-based view. Institutional theory investigates the influence of external forces andthe resource-based view investigates the importance of internal resources. Second, regarding external aspects, our re-search extends the literature by looking at the effect that voluntary norms have on proactive environmental management.

Third, the joint effect of pressure from and cooperation with stakeholders is examined. The way in which perceived pres-sures and cooperation with stakeholders jointly affect environmental proactivity is still unexplored. We study which variable(pressure or cooperation) has a stronger influence on proactive environmental management. Finally, we identify the inter-nal resources and capabilities that might affect proactive environmental management.

The paper has the following structure. It starts with a literature review and the presentation of our hypotheses. This isfollowed by a description of the research design. Next, a structural equation model will serve as the basis to show the resultsobtained, which will later be subject to discussion along with some theoretical and managerial implications. The paper endswith some limitations and directions for future research.

1 Environmental management is defined as “the equipment, methods and procedures used at the production, product design and product distributionmechanisms which save energy and natural resources, minimize the environmental problems generated by human activities and protect the natural en-

vironment” (Shrivastava, 1995). Proactive environmental management has been described as systematic patterns of voluntary practices that go beyondregulatory requirements, in terms of waste reduction and prevention of pollution at source, for instance (Aragón-Correa and Rubio-López, 2007).

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Theoretical background and hypotheses

External and internal factors and proactive environmental management: a multi-theoretic approach

Before developing the hypotheses examining the influences of specific external and internal factors on proactive envi-ronmental management, this section briefly presents the multi-theoretic approach used in our study. As stated above, a keypoint of this study is the joint analysis of external and internal aspects, and this analysis may be supported by two impor-tant theories: institutional theory and the resource-based view. Oliver (1997) combined these two theories to explain sustainablecompetitive advantage. In our case, we combine these theories in relation to the implementation of proactive environmen-tal management.

Institutional theory examines the role of social influences and pressures for social conformity in shaping organizations’actions (DiMaggio and Powell, 1983; Meyer and Rowan, 1977). The institutional context refers to rules, norms, and beliefssurrounding economic activity that define or enforce socially acceptable economic behaviour. At the individual level, theinstitutional context includes decision-makers’ norms and values. At the firm level, it includes organizational culture andpolitics. And, at the interfirm level, it includes public and regulatory pressures and industry-wide norms. Undoubtedly, asexamined below, external factors (e.g., voluntary norms and stakeholders) influence firms’ actions regarding environmen-tal management.

The resource-based view of the firm (Barney, 1991; Wernerfelt, 1984) examines the resources and capabilities of firmsthat enable them to generate above-normal rates of return and a sustainable competitive advantage. The resource-basedapproach focuses on the characteristics of resources and the strategic factor markets from which they are obtained to explainfirm heterogeneity and sustainable advantage. According to this view, it is the rational identification and use of resourcesthat are valuable, rare, difficult to copy and non-substitutable, which lead to enduring firm variation and supernormal profits(Barney, 1991). As will be indicated below, regarding proactive environmental management, internal resources may deter-mine firms’ actions with regard to proactive environmental management.

Comparing these two theories, the basic premise of institutional theory is that successful firms are those that gainsupport and legitimacy by conforming to external pressures. Then, following this theory, the level of proactivity inenvironmental management is determined by these external factors. In contrast, the basic argument of the resource-basedview is that rare and inimitable resources cause firm heterogeneity, and successful firms are those that acquire andmaintain valuable idiosyncratic resources for sustainable competitive advantage. According to the latter view, theseinternal firm resources determine the level of proactivity in environmental management. A key point of our paper is thatproactive environmental management depends on both external and internal factors; consequently, both institutionaltheory and the resource-based view may help to support the analysis of factors that influence proactive environmentalmanagement. Therefore, this article develops a model of environmental management that combines institutional andresource-based perspectives.

In the following sections we examine the impact of external factors (voluntary norms and stakeholders) and internalfactors (firm resources) on proactive environmental management. We also analyze the effect of proactive environmentalmanagement on competitive advantage.

Voluntary norms

There are two different styles of environmental regulation: command-and-control legislation and voluntary norms. Thecommand-and-control approach consists of making the addressees of the law behave in the way you want them to behaveby way of direct and detailed prescription of the desired behaviour (e.g. control of waste, residues, spills and emissions andthe planning of possible environmental damage risks). It promotes the use of mere end-of-pipe technologies, and fails toincite measures beyond legally binding standards (Lübbe-Wolff, 2001). As this command-and-control legislation involves

prescription of the desired behaviour, managers do not really have another option than to adhere. Consequently, it is notworth looking at the influence of this type of regulations on proactive environmental management.Consequently, we focus on the second type of environmental regulations, namely, voluntary norms, and their impact on

proactive environmental management. Voluntary norms are related to self-regulation processes (e.g. the achievement of environmental certification — EMAS and ISO 14001, the application of ecological labels and the use of renewable energies),where firms decide to act on their own regarding the preservation of the environment, establishing the objectives and im-plementation processes and submitting them both for the commercial approval of the firm and for the institutional approvalof the public regulator (Antón et al., 2004). The greater efficiency ascribed to such voluntary norms is a function of theirbroader scope, and greater freedom to move within a given framework, which these norms afford to individual actors whoapply them.

If voluntary norms are seen as an opportunity, managers may be able to solve problems creatively and identify and adoptinnovative technologies (Russo and Fouts, 1997) and develop collaborative interactions with stakeholders (Sharma andVredenburg, 1998). Berrone and Gómez-Mejía (2009) point out that managerial perceptions of the importance of these norms

as a competitive opportunity are associated with a more proactive stance on environmental commitment. However, man-agers may see environmental regulation as a threat if it is associated with end-of-pipe techniques. The reason is that

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command-and-control techniques are relatively expensive, can be obtained in the open market, and thus competitors canreadily copy and implement them. It can be inferred that the weight of environmental regulation — in its “command-and-control” or “voluntary” dimensions — in managerial decisions has to do with the type of environmental practices promotedby each type of regulation.

The literature also argues that command-and-control regulation stifles innovation and that voluntary norms encourageproactive environmental strategies that lead to competitive benefits for firms (Sharma, 2001). Thus, voluntary norms en-courage innovation and provide the firm with flexibility (Managi et al., 2005). Environmental product innovation comprisesthe introduction of new technologies, the use of known technologies for new applications and investment in new knowl-edge, and improvement of existing products — e.g. through new materials (Triebswetter and Wackerbauer, 2008). Theseideas make it possible to formulate the following hypothesis:

Hypothesis 1. The greater the degree of voluntary norms (focused on a proactive logic), the greater the likelihood of developing proactive environmental management.

Stakeholders

Some works have identified dominant pressures likely to have an influence on a firm’s environmental practices (Darnallet al., 2010; Delmas and Toffel, 2004). Other studies have examined the extent to which firms should develop a cooperativerelationship with their stakeholders (Delmas and Toffel, 2004; Grafé-Buckens and Hinton, 1998). This paper examines bothpressure from and collaboration with stakeholders, in order to understand how they may jointly affect the design of pro-active environmental management.

The pressures exerted by stakeholders on managers are increasingly intense (Ackermann and Eden, 2011). Stakeholdersmay influence the organization’s environmental management through a variety of mechanisms — such as incentives,penalties, advice, etc.—and to varying degrees. The extent to which stakeholders use these mechanisms of environmentalinfluence depends not only on the importance they assign to environmental issues, but also on the degree to which theyperceive that the organization has the capacity and/or responsibility to reduce its negative environmental impact(Céspedes-Lorente et al., 2003). For instance, providers request information about the implementation of environmentalmanagement systems within the firm or about compliance with the legislation (Bonilla and Avilés, 2008). Customers maynot purchase their products and services if firms do not produce and deliver them in an environmental way ( Foster et al.,2000). And societal stakeholders (public interest groups that include environmental and community organizations, laborunions, industry associations and so on) have the capacity to mobilize public opinion in favor of or in opposition to thefirm (Freeman, 1984). Societal stakeholders generally utilize indirect approaches to influence firm behaviour because theylack a direct economic stake in the organization (Sharma and Henriques, 2005). When firm behaviour goes in opposition tothe protection of the natural environment, societal stakeholders may utilize approaches such as public protests, strikes,and industry calls for engagement (Darnall et al., 2010). These actions may separate the firm from the rest of society,which leads to a worse reputation, to increased costs, and to a reduction in the shareholder value due to the erosion of itsability to act (Hill, 2001). Therefore, it is expected that the stronger the pressures are from stakeholders, the greater theinterest of managers in protecting the environment and therefore the greater the likelihood of developing proactiveenvironmental management.

Delmas and Toffel (2004) indicate that proactive environmental management involves creative problem solving and col-laborative interaction with stakeholders (Sharma and Vredenburg, 1998). For example, firms adopting voluntary approachescan implement environmental management system (EMS) elements by creating an environmental policy, developing a formaltraining program or instigating routine environmental auditing. In addition, management can choose to have the compre-hensiveness of their EMS validated by a third party by pursuing ISO 14001 certification. Management can also convey the

importance of environmental management by including it as a criterion in employee performance evaluations (Nelson, 2002).Firms may also choose to seek to improve relations with regulators and signal a proactive environmental stance by partici-pating in government or industry sponsored voluntary programmes. Industry associations and NGOs may create voluntarystandards to provide incentives for firms to go beyond minimal regulation requirements ( Delmas and Toffel, 2004). Firmsmay engage in systematic communication, consultation and collaboration with their key stakeholders and host stakehold-er forums and establish permanent stakeholder advisory panels at either the corporate level, the plant level, or to addressa specific issue (Nelson, 2002). Madsen and Ulhoi (2001) indicate that managers can positively value the potential com-petitive opportunities derived from the dialogue and collaboration with their stakeholders, as the latter can bring new ideasand knowledge that are likely to favor an anticipating, proactive, and innovative attitude within the organization. Thus, thegreater the collaboration of stakeholders regarding environmental issues, the more extensive the adoption of environmen-tal management practices by firms.

Therefore, we can state the following hypotheses:

Hypothesis 2a. The greater the pressure exerted by stakeholders on the firm, the greater the likelihood of developing proactiveenvironmental management.

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Hypothesis 2b. The greater the degree of collaboration of stakeholders with the firm, the greater the likelihood of developing proactive environmental management.

Firm resources

Following the resource-based view, previous research on business strategy and the natural environment emphasizesthe role of availability of firm resources in the environmental area. For example, Christmann (2000) argues that theprofit-generating potential of pollution proactive technologies depends on the process innovation skills of a business. In asimilar way, Judge and Douglas (1998) find empirical support for the hypothesis that the level of integration of environmental issues into the strategic planning process and available resources are positively correlated. Wu et al. (2008)show that it is only the tacit resources within an environmental management system that help explain firms’ operationalperformance. For Aragón-Correa et al. (2008) these capabilities are shared vision, stakeholder management and strategicproactivity. Elsayed (2006) has demonstrated that the amount of resources available to the firm and firm size determine itsorganizational capacity to implement the appropriate environmental initiatives, and consequently its environmentalperformance. However, he does not find evidence that available resources limit the firm’s strategic choice and theenvironmental responsiveness chosen. Similarly, Stanwick and Stanwick (2000) find a nonlinear relationship betweenavailable resources and environmental orientation, with the highest level of environmental commitment being shown byfirms with moderate availability of resources. As a consequence of this divergence in the literature, Karagozoglu andLindell (2000) claim more studies are needed to carefully examine the effects of this variable as a determinant of a firm’senvironmental orientation.

The resources and capabilities required to implement a firm’s environmental management strategy vary radically, de-pending on whether or not the firm goes beyond compliance to embrace proactive environmental management (Russo andFouts, 1997). A firm may adopt either end-of-pipe technologies or proactive technologies to develop its environmental man-agement. End-of-pipe techniques favors improvement, mainly in the undesired outputs of production processes, such asemissions into the air and water, which result in few positive effects on environmental performance (Schaltegger and Figge,2000). By contrast, efficiency improvements brought about by integrating a proactive stance on pollution can encompassactivities such as improvements in the firm’s energy-use or water-use efficiency, or increased resource efficiency — i.e., reducedamounts of production input per unit of product output (Wagner, 2005). Klassen and Whybark (1999) indicate that pollu-tion proactive technologies exert a positive influence on firm performance, whereas end-of-pipe technologies do not. Moreover,Wagner (2005) demonstrates that high levels of firm performance coincide with high levels of environmental manage-ment only if the firm’s environmental technology has a pollution proactive orientation.

There are different costs associated with environmental management. In the first place, there are prevention costs, whichare related to pollution proactive techniques, including resource allocations in different areas — e.g., investment in greenproduct and manufacturing technologies, in employee skills and participation, in organizational competences, in formal (routine-based) management systems and procedures, and finally in the reconfiguration of the strategic planning process (Russo andFouts, 1997). Other costs are those of control, associated with end-of-pipe technologies. There are also costs related to theinefficient use of resources, legal costs associated with fines, sanctions, legal actions and repair of damage, and, finally, costsfor loss of image in the eyes of customers and investors. The experience of many firms that have applied pollution proac-tive techniques is that prevention costs (related to the proactive approach) are compensated by the savings on other costs(López-Gamero et al., 2008).

Shifts from a reactive approach to a pollution proactive approach require substantial resource allocations in multiple domains.Thus, if managers have available resources in the firm and may use them to develop proactive environmental manage-ment, they will be more motivated to do it. All these arguments lead to the following hypothesis:

Hypothesis 3. The greater the availability of firm resources in the firm, the greater the likelihood of developing a proactive approach to environmental management.

Proactive environmental management and competitive advantage

Proactive environmental management may enable the firm to save costs, input and energy consumption, and toreuse materials through recycling (Hart, 1997). Thus, eco-efficiency involves producing and delivering goods whilesimultaneously reducing the environmental impact and use of resources (Starik and Marcus, 2000). By using proactiveenvironmental management, firms can eliminate environmentally hazardous production processes, redesign existingproduct systems to reduce life cycle impact, and develop new products with lower life cycle costs (Fraj-Andrés et al., 2009;Hart, 1995). More advanced environmental management can assist the whole organization in achieving greaterorganizational efficiency. In fact, firms may save costs by responding to market pressure for greater production efficiencyand gathering the “low-hanging fruit” associated with reducing excessive waste of material and energy (Hart and Ahuja,1996).

Reducing pollution may also result in increased demand from environmentally sensitive consumers, because the envi-

ronmental characteristics of products are likely to be appreciated by these “green” customers (Elkington, 1994). Moreover,a firm that shows good environmental initiatives will most probably acquire a high environmental reputation (Miles and

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Covin, 2000). Firms that adopt proactive environmental management may benefit from premium pricing and increased salesbecause of enhanced market legitimacy and greater social approval (Molina-Azorín et al., 2009). Such approval may allowenvironmentally conscious organizations to market their management procedures as selling points for their products, andcreate a means to differentiate their products from their competitors (Galdeano-Gómez et al., 2008).

Therefore, proactive environmental management can provide opportunities to reduce costs and increase revenues. Basedon the above reflections, we suggest the following two hypotheses:

Hypothesis 4a. There is a positive relationship between proactive environmental management and cost competitive advantage.

Hypothesis 4b. There is a positive relationship between proactive environmental management and differentiation competitiveadvantage.

Figure 1 shows our proposed framework and the hypotheses.

Methods

Sample frame

To select the sample, we considered a number of studies that relate a firm’s environmental attitude to the type of ac-tivity it develops, and reveal a stronger environmental commitment by firms belonging to industries with the most seriouspollution-related problems (Berrone and Gómez-Mejía, 2009; Fraj-Andrés et al., 2009). Shih et al. (2006) pointed out thatindustries with long-term cumulative pollution problems — e.g., the oil industry, chemical industry and steel industry —are more likely to take the initiative to disclose environmental information than lower-pollution industries such as serviceindustries. The least-polluting firms suffer less pressure, since the main environment protection measures have basicallybeen focused on industrial activities with a direct, visible impact on the environment (Bowen, 2000).

Thus, in order to achieve the aims of the study, we sought a sample in which the most-polluting firms were representedand where all of them were subjected to the same regulatory framework. It was also essential that firms in the sample wereaware of both legally imposed and self-regulation measures that could be used to achieve an effective operational and en-vironmental result.

We decided to consider the firms affected by the Act 16/2002 of 1 July, on Integrated Pollution Prevention and Control(IPPC law). These firms are all subject to the same regulatory framework and arguably face similar media attention, scru-tiny from activists, community concerns, and changes in consumer preferences. Institutional theory predicts that firms inthis strong institutional field gain legitimacy by exhibiting good environmental performance (Bansal, 2005; Berrone andGómez-Mejía, 2009).

The IPPC law applies to five main industrial categories: energy; production and processing of metals; minerals; chemi-cals; and “other”, including pulp and paper production, textile treatment, tanning, food processing and intensive livestock

operations. The IPPC law seeks to avoid or, when that is not possible, to reduce and control pollution in the atmosphere,water and land through the establishment of an integrated proactive pollution control system that has as its aim a high

Variables = SIZE; VOL: voluntary norms; STAKE-pressure: degree of pressure exerted by stakeholders; STAKE-

collaboration: level of collaboration with stakeholders; FR: firm resources; EM: environmental management; CAC:competitive advantage on costs; CAD: competitive advantage in differentiation.

VOL

STAKE-pressure

FR

EM

CAC

CAD

SIZE

H1 (+)

H2a (+)

H3 (+)

H4a (+)

H4b (+)

STAKE-collaborationH2b (+)

Figure 1. Framework illustrating hypothesized relationships

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level of protection for the natural environment as a whole (Art. 1). This environmental regulation therefore includes pro-active pollution techniques as an essential part of its development (Rave and Triebswetter, 2008). In fact, Silvo et al. (2009)postulate that indicators used in the IPPC law could provide a sound basis for indicators in voluntary environmental man-agement systems.

In summary, the IPPC law seeks a balance between legal imposition and self-regulation in order to achieve an effectiveoperational and environmental result (Silvo et al., 2002). In spite of the fact that the IPPC law uses a command-and-controlapproach to reduce industrial emissions, it clearly involves some elements of flexibility that aim to facilitate the adapta-tion processes in the firms affected, encouraging them to implement efficient forms of adaptation from both an environmentaland economic perspective (Cañón-de-Francia et al., 2007). The law attempts to reduce pollution at source, guaranteeing firmsthe flexibility necessary for the utilization of the best available techniques for each production process.

Data collection

We decided to ask for perceptual data from environmental managers. We have chosen to focus on the environmentalmanager, precisely because they are in the best position to explain the strategic intent of their portfolio of environmentalaction projects. Given the current state of the art of environmental management, we decided that we needed to rely on theperceptions of the managers responsible for environmental management regarding the strategic goals on environmentalissues.

Support for using perceptual managerial data rather than other secondary databases comes from the theoreticalliterature and from practical research issues. There is considerable theoretical support for using perceptual data (Boydet al., 1993; Lawrence and Lorsch, 1967). If in fact managerial decision-making is driven by the beliefs of managers, itmakes sense to ask how managers perceive the environment, and the extent to which they believe they are responding tochanges in environmental responsibility in a strategic fashion. In short, while external databases may provide insightsinto firm behaviour regarding environmental issues, these sources do not measure the strategic importance of voluntary norms, stakeholders and firm resources for firms, nor do they indicate how firms seek to achieve morecompetitiveness through environmental management. This can only be achieved by asking environmental managersthemselves. Nonetheless, we are aware of the limitations of our data and perceptual measures. Our results must thereforebe handled with caution, inviting further research and awaiting the moment when more fine-grained, objective data willbe available.

A survey instrument was developed to measure the basic constructs of voluntary norms, stakeholders, firm resources,environmental management and competitive advantage. We include the items used to measure these constructs inAppendix A. Each of these items was measured using a seven-point Likert scale. The face validity of the instrument wasdetermined by a detailed examination of the instrument by a group of university-based management researchers andindustry experts, after which a group of eight managers pre-tested it. We had a meeting with environmental managers of eight firms belonging to different industrial categories affected by IPPC law (energy, minerals, chemicals, textile treatmentand food processing). Our primary aim was to find out if respondents from different industries understood the words,terms, and concepts used in our survey. Moreover, we wanted to know if they were attentive to and interested in thequestions, because they could be indicators of how hard the respondent is working to provide correct answers. They allreported back with the judgment that our measures appeared to be good for our variables, after we eliminated the itemsthat have the symbol “*” (Appendix A, Table A1) (those items were removed following the advice of the experts whoreviewed the initial questionnaire).

We used The European Pollutant Emission Register (EPER) to select the firms affected by the IPPC law. EPER is aPollutant Release and Transfer Register providing access to information on the annual emissions of industrial firms in theMember States of the European Union. Specifically, firms were selected from the EPER-Spain database, published by theMinistry of Environment. We sent the survey to the managers of 4,187 Spanish firms affected by the IPPC law in 2004. The

covering letter and the instructions indicated that the survey respondent should be an environmental manager or, failingthat, the firm should forward it to someone familiar with the issues. The interviewee also had the choice of filling in thequestionnaire on a web page. Four reminder e-mails followed during the four weeks after the initial mailing, so as toencourage a response. Furthermore, we made follow-up phone calls starting two weeks later. We received responses from208 firms affected by the IPPC law. Considering the length of the questionnaire and the senior level of the managerstargeted, the response rate achieved is in keeping with that obtained by other works that have studied similarorganizational phenomena in Spain (Brío and Junquera, 2001; Brío et al., 2002; Carmona-Moreno et al., 2004). The sampleincludes firms from different industries. The food industry contributes most (25.96%), followed by chemicals (19.23%),minerals (18.26%) and metals (16.82%). With respect to the percentage distribution, according to size, most firms aremedium and large. 26.92% of firms have between one and 49 employees, 40.30% have 50 to 249 employees and 32.69%have more than 250 employees.

We employed procedures to detect problems of non-response bias and common-method variance. We also conductedanalyses to provide support for the issues of dimensionality, and convergent and discriminant validity. The results of these

tests appear in Appendix A and they demonstrate the robustness of the variables and suggest that response bias and common-method variance were not significant problems.

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Analysis and results

We used structural equation modeling (LISREL 8.5) to examine our hypotheses (see Appendix B for details of the anal-ysis). Figure 2 shows the research model and displays the estimated standardized path coefficients. The results can besummarized as follows:

Hypothesis 1 argued that voluntary norms, focused on a proactive logic, would be positively associated with the likeli-hood of developing proactive environmental management. The coefficient of the path between these variables is positiveand significant (β = 0.33, p < 0.001); hence, Hypothesis 1 is supported.

Hypothesis 2 proposed a positive association between stakeholders (pressure and collaboration) and the likelihood of developing proactive environmental management. The two variables — pressure and collaboration — have a positive and

significant relationship with proactive environmental management. Therefore, Hypotheses 2a and 2b are supported. Of thetwo, pressure exerted by stakeholders plays a major role (β = 0.40, p < 0.001), while collaboration with stakeholders has alower but relevant effect on proactive environmental management (β = 0.19, p < 0.01).

Hypothesis 3 predicted a positive association between firm resources and the likelihood of developing proactive envi-ronmental management. The coefficient of the path between these variables is positive and significant (β = 0.35, p < 0.001);hence, Hypothesis 3 is supported.

Hypothesis 4 predicted a positive effect of proactive environmental management on competitive advantage. We foundpositive and significant effects of proactive environmental management on cost (β = 0.67, p < 0.001) and differentiation (β = 0.70,p < 0.001) competitive advantage, supporting Hypotheses 4a and 4b.

Finally, we proposed a positive association between size (control variable) and firm resources, proactive environmentalmanagement and competitive advantages. The path from size to environmental management (β = 0.10, p < 0.05) is positiveand significant. However, the link between size and firm resources and the links between size and cost and differentiationcompetitive advantages are not significant.

Discussion and conclusions

Our findings have several implications for theory development in the literature on environmental management and com-petitiveness. The results clearly show that when environmental regulation stems from voluntary norms, it has positive effectson proactive environmental management. These results agree with some recent research that suggests environmental reg-ulation does not automatically lead to radical innovation (Smith and Crotty, 2006) or short-term improvement in firms’competitiveness (Wubben, 1999), but depends of the type of environmental regulation. Command-and-control regulationmay have an adverse effect on productivity in that it forces firms to commit resources to non-productive environmentalactivities such as litigation. However, voluntary norms may lead to cost savings and increased sales of green products (Sharma,2001).

Regarding stakeholders, pressure exerted by stakeholders plays a major role in the development of proactive environ-mental management, while collaboration with stakeholders has a lower but relevant effect on proactive environmental

F1FR

F2FR

F3FR

Variables = SIZE; VOL: voluntary norms; STAKE-pressure: degree of pressure exerted by stakeholders;

STAKE-collaboration: level of collaboration; FR: firm resources; F1FR: FR-involvement of the top

management; F2FR: FR-learning and knowledge of employees; F3FR-speed and flexibility; EM:

environmental management; CAC: competitive advantage on costs; CAD: competitive advantage in

differentiation.

*** p < .001; ** p < .01; * p < .05; ns: not significant.

VOL

STAKE-pressure

FR

EM

CAC

CAD

SIZE

0.33***

0.40***

0.35***

0.67***

0.70***STAKE - collaboration

0.19**

ns

ns

0.10*ns

0.69

0.75 0.84

Figure 2. Research model with path coefficients

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management. A possible explanation for the lower influence of stakeholder collaboration could be high stakeholderpressure on potentially polluting firms, as is the case of the firms affected by the IPPC law considered in this study.The extent to which stakeholders exert pressure on the firm depends on the importance they assign to environmentalissues and the extent to which they perceive that the firm has a responsibility to reduce its negative environmentalimpact.

Another important finding of this study is related to the positive link between firm resources and the development of proactive environmental management. The firm resources variable was formed of three factors that had different weights.The speed and flexibility with which the firm carries out changes to adapt to new environmental conditions is the capa-bility which had more weight; the learning and knowledge of employees is the second; and the actions and degree of involvement of the top management in the firm’s operations had the least weight.

In this paper we have shown a positive link between firm resources and environmental proactivity. We havealso identified which specific firm resources contribute to the firm resources variable. New studies analyzing whichof these specific firm resources have the greatest influence on environmental proactivity would be of greatvalue. Considering the weights assigned to firm resources, we might present some ideas that might be considered indesigning future studies of the link between specific firm resources and environmental proactivity. For example, thespeed and flexibility with which the firm introduces changes to adapt to the new environmental conditions andthe organization members’ learning and knowledge might be the capabilities that the manager takes into accountwhen the time comes to decide the right moment to integrate environmental issues and the degree of prevention to bereached. As Rondinelli and Vastag (2000) find in their study, firm resources favor the adoption of practices withmore aggressive environmental goals, extending them to skills related to proactive anti-pollution techniques. Inaddition, these firms will be able to achieve greater environmental improvements because they can make a more efficientuse of their internal experience and obtain constant improvements, thus enhancing their organizational efficiency(Christmann, 2000). The success of this change will depend on the ability to adapt to the new situation, that is, on thepossibility of having easy access to information related to environmental practices, and on the know-how available inthe organization that may serve to develop new tasks or processes (Rugman and Verbeke, 2000). With regard to theflexibility and speed in adaptation to environmental changes, Bansal (2005) emphasizes the weight of this capability inenvironmental management development, above all in the early stages, when only a few firms have adopted environmen-tal practices.

Similarly, investment in employee training and education should be high, linked to the organization of training andinformation courses meant to familiarize workers with the changes in the productive process resulting from theintroduction of environmental improvements. These ideas are similar to the approach advocated by Govindarajuru andDaily (2004). These authors describe the importance of giving employees both the ability and the responsibility to takeactive steps in identifying problems that affect quality or consumer service in the working environment, and in dealingwith them effectively. Finally, the degree of involvement of top management in the firm’s operations had the least weightin the firm resources variable. Managers might not be too involved in the development of proactive environmentalmanagement. Environmental managers may have little executive support to implement significant environmental change.As a consequence, unless they are faced with low-risk decisions, firms may see a reduction in some opportunities todevelop new products or technological innovations that may improve the natural environment and achieve competitiveadvantage.

Our work supports the hypothesis that managers who adopt a more proactive stance on environmental managementare more likely to exploit and engage in the pursuit of competitive opportunities discovered (or created) because of theirreadiness and willingness to seize new opportunities (Heavey et al., 2009). As Galdeano-Gómez et al. (2008) and Sharmaand Vredenburg (1998) found in their studies, we have observed that investment in proactive environmental managementcontributes to increasing the competitiveness of the firm. In relation to competitive advantage on costs, proactive environ-mental management means the adoption of environmental practices that improve the production process, increase its efficiencyand reduce input and waste disposal costs, and the decisions related to these practices allow firms to gain competitive ad-

vantage through cost reductions (Fraj-Andrés et al., 2009). Traditionally, resource efficiency has not been a major concernfor managers, but in our study there are indications that resource savings and other environment-related costs are becom-ing more important for the competitiveness of firms.

Relative to the competitive advantage of differentiation, firms investing in environmental improvements have to someextent gained a stronger reputation among customers. Although there have been advances in products and processes, themore significant effects seem to occur in marketing and image-building, as the study of Lindell and Karagozoglu (2001) hasshown.

Finally, size (control variable) is a determining aspect in the extent to which managers develop proactive environmen-tal management. Aragón-Correa et al. (2008) and Hitchens et al. (2003) also indicate in their study that size is a relevantcondition for developing the most proactive environmental management. The significant effect of size may be due eitherto the greater capacity or slack that larger firms have to absorb the risk and unpredictability associated with voluntary en-vironmental strategies or to these firms’ higher visibility (and hence, higher external scrutiny) (Elsayed, 2006). Bowen (2002)suggests that it is not size per se that promotes environmental responsiveness, but the elements of an organization’s visi-

bility that may result from its size. Larger firms, therefore, are more likely to find their reputation suffering if they do notperform well on social measures, and act accordingly (Moore and Manring, 2009).

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Implications from the study: issues for researchers

Our paper contributes to theory by providing empirical support for arguments that three factors are forceful in pushingcorporate environmental progress: voluntary norms, stakeholders and firm resources. Competitive opportunities have beenidentified both inside firms (exploiting useful firm resources such as learning and knowledge of employees and speed andflexibility to carry out changes to adapt to the new environmental conditions; and decreasing costs) and beyond (securinga good reputation with stakeholders).

In this paper, we advance the understanding of how firms, in cooperation with stakeholders, and using voluntary normsand firm resources, are developing strategies to protect the natural environment, which are competitive. With these find-ings, this paper fills gaps in the extant literature on the potential for using the integration of environmental and firm performanceaspects at the firm level to increase the competitive benefits from environmental management. This work closes anotherimportant gap by presenting a multi-theoretical approach, integrating institutional theory and the resource-based view torecognize the wider influence of factors impacting on environmental management, showing that those theories are com-plementary rather than mutually exclusive.

Implications from the study: issues for managers

A key implication of this article for practitioners is that our results indicate the need to focus on the development of proactive environmental management to improve firm competitiveness.

Management commitment should constitute an important motivating factor to invest in proactive environmental man-

agement, since managerial environmental values, beliefs and behaviour lead firms to green their culture, incorporatingenvironmental considerations throughout the entire organization (Berrone and Gómez-Mejía, 2009; Boiral, 2011). For thisreason, in an unpredictable environment, we need to persuade managers to take the initiative, to anticipate new opportu-nities and to participate in new markets. They should be involved in decisions concerning the implementation of environmentalmanagement, informal discussions on this issue with employees, and so on.

For smaller firms, we might suggest the possibility of having benefits from various aids and subsidies granted by theGovernment or other public bodies. Moreover, some monetary sums could be deducted from certain taxes if environmen-tal investments are undertaken, which considerably reduces both the financial and the time costs. As for the training required,the Government organizes free specific courses, by area of activity and sector, in which firm members can participate.

Strict command-and-control regulation may have an adverse effect on productivity. For this reason managers should seevoluntary norms as a way to enhance their competitive position for a number of reasons: it can improve their reputationin the market, it promotes the development of green products, it can act as an entry barrier and it reflects the personalconcerns of managers about the natural environment.

We suggest that managers should collaborate with stakeholders, including them in designing the goals for proactive en-vironmental management through information sharing, knowledge integration and long-term commitment that places learningissues at the heart of efficiency. Tapping the experience and knowledge of these stakeholders may be a useful source toidentify opportunities and facilitate experimentation based on innovative approaches.

Investment in employee training and education is very important to reinforce the concern for sustainability in the firm(Boiral, 2002). We recommend that employees should be encouraged to share information and work in teams to addressenvironmental problems. Moreover, knowledge development of this sort and employee engagement leads to environmen-tal practices based on decentralized communication and operations, which are difficult for competitors to replicate (Darnallet al., 2008).

Our results indicate that resource savings and other environment-related costs are important for the competitiveness of firms. Therefore, it is important to focus on the development of new organizational capabilities to complement managerialwillingness to develop proactive environmental strategies. Managers have excellent opportunities to establish close linkswith customers and other stakeholders so as to develop loyalty and legitimacy based on environmental preservation, which

in turn leads to differentiation competitive advantage (Darnall et al., 2010).Finally, our study is also important for managers because it reveals the opportunistic character of firms. It points out

that a real commitment to environmental management may result in a positive influence on firm competitiveness.

Limitations and implications for the future

Interpretation of the results presented here is subject to a number of limitations. First, the nature of the present samplemakes it difficult to generalize the results. It is possible that fewer responses were received from those with less developedpostures in relation to the natural environment. Although this possibility did not prevent verification of the hypothesesformulated, the relative positions of the firms analyzed must be emphasized. As was the case in the study byAragón-Correa (1998), the positions of the firms were defined with respect to the others surveyed in the industry. Oursample was the group of firms affected by the IPPC law in Spain as a whole. We did not introduce a control variable related

to the industry, because there were not enough firms in each industry to provide for a satisfactory statistical solution. Thesmall number of usable responses per industry means that the results cannot be taken to describe the situation in each

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industry separately, but are only valid for verifying the generalizing potential of the relationships proposed (Aragón-Correa,1998). In future research, it would be desirable to increase the number of firms responding in each industry in order tocontrol for the industry to which the sample firms belong. There may be significant differences in the link betweenvoluntary norms, stakeholders, firm resources, proactive environmental management and competitive advantages acrossindustries.

The uniqueness of internal competencies or external pressures inherent in an industry, the degree of public visibility,the different configurations of stakeholders and their differing degrees of activism on particular issues are some of the pos-sible reasons for these differences and suggest that the identification of the industry level circumstances should receive moreattention.

Second, since this research paper relies heavily on self-reported measurements provided by firm managers, future re-search works could add to the confidence that can be placed in the results reported here by replicating this study with moredirect objective measurements of the theoretical constructs. Even so, in relation to environmental management, this alter-native approach may also be inadequate, since it may not fairly reflect a firm’s overall environmental management due toits multidimensional nature (Griffin and Mahon, 1997; Johnson and Greening, 1999). The use of objective measures impliesthat the full range of options for a firm seeking to improve its environmental management may not be captured; this canlead to a partial explanation of a firm’s proactive environmental management, and to an incomplete theory.

Third, this study relies on single respondents, and responses are primarily perceptual in nature. Although this is commonin survey studies (Starbuck and Mezias, 1996), such responses are prone to common method bias. Even though commonmethod bias was not detected to be a significant problem in this study, the accuracy of the responses could be improved if measures of the predictor and criterion variables were obtained from different sources.

Fourth, our model is aggregated and considers stakeholders as a whole. In this context, it might be interesting to dis-tinguish between primary and secondary stakeholders (Madsen and Ulhoi, 2001), as well as to capture the environmentalpressures exerted by the separate stakeholder: their importance, their power over the firm, the power they exert over otherstakeholders, and the way this influence is exerted. The relationship between the firm and its separate stakeholders mayprovide interesting insights into proactive environmental management (Céspedes-Lorente et al., 2003).

Fifth, since firms affected by the IPPC law are widespread in the European Union, it would be particularly interesting toinvestigate these relationships on an international comparative basis, both within the European Union and outside the Eu-ropean Union, to examine whether different financial conditions in different countries have a different impact on the typeof environmental technology developed (end-of-pipe and proactive) by firms.

Sixth, since such firms view the development of proactive environmental management as a source of competitiveadvantage, managers are likely to cooperate with regulators in the development of new regulations — the voluntary norms— tailor-made to satisfy their firm-specific needs (Buysse and Verbeke, 2003). In fact, there is already a propensity for gov-ernments to consult industry before enacting or implementing new environmental rules, and a greater emphasis on voluntarynorms in most industrialized countries (Rugman and Verbeke, 2000). Thus, it would be interesting to analyze, in a futureline of research, the two-way relationship between environmental regulation and managerial commitment.

Seventh, from the results of this study, a possible research question that remains unaddressed and might form asuitable basis for future research is: can we rely on the market-driven voluntary corporate efforts to protect the naturalenvironment, or is command-and-control regulation warranted? The literature shows that when environmental regulationstems from command-and-control legislation, its influence on proactive environmental management may not be signifi-cant. On the other hand, we have shown that when environmental regulation stems from voluntary norms, it has positiveeffects. These results may suggest that environmental regulation does not automatically lead to radical innovation ( Smithand Crotty, 2006) or short-term improvements to firms’ competitiveness (Wubben, 1999), but depends on the type of environmental regulation. Achieving legitimacy in a strong institutional field requires substantial strategies and managersfollow these environmental strategies only when they have economic incentives to do so (Berrone and Gómez-Mejía,2009). Strict command-and-control regulation may have an adverse effect on productivity, in that it forces firms to commitresources and manpower to non-productive environmental activities such as environmental auditing, waste treatment and

litigation. However, creative solutions and innovation resulting from voluntary environmental strategies may lead to costssavings and increased sales of green products (Sharma, 2001). These ideas should be studied more deeply in a futureresearch.

Finally, within these limits — and given that none of the limitations was so severe that it prevented meaningful analysis— this study has hopefully clarified the relevance of internal competencies and external pressures in the link betweenproactive environmental management and competitiveness and will help to motivate and trigger further work on thistopic.

Appendix A. Survey questions and data treatment

The relevant writings in the literature were examined in order to operationalize the constructs depicted in Figure 1. Allmeasures were subjected to confirmatory factor analysis to provide support for the issues of dimensionality, convergent

validity and discriminant validity. Table A1 shows scale items, standardized loadings, reliabilities, and confirmatory factoranalysis results for the variables used in the research.

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Table A1

Scale items, reliabilities, and confirmatory factor analysis results a

Scale items b Standardised loadings(measurement model)

Factors (Eigenvalue) % of varianceextracted

Compositereliability

VOLUNTARY NORMSIt has a negative impact on competitiveness because it

increases firm costs **F1 (1.599) 53.291 0.64

It generates incentives to innovate, as it encourages the

adoption of cleaner technologies

0.62

It establishes rigid restrictions on the adoption of newproducts and technological processes **

It modifies market demands introducing new assessmentcriteria through consumer awareness-raisingmechanisms

0.53

It means a high cost for the firm **It represents a market opportunity for the firm 0.48STAKEHOLDERS — PRESSURE Threaten to fine the firm if the latter does not protect the

environment.0.92 F1 (1.809) 80.445 0.89

Promise rewards if the firm improves its environmentalbehavior.

0.88

STAKEHOLDERS — COLLABORATION Provide their perspective about how to solve the firm’s

environmental problems successfully.0.79 F1 (2.092) 69.721 0.78

Provide new ideas to improve environmental andmanagement practices.

0.77

Cooperate with the firm through forums created to sharetheir expectations and values, with the aim of understanding them and reaching an agreement.

0.66

FIRM RESOURCESThe top management’s behavior inspired the acceptance of

change by all the other members of the organization.0.78 F1: Firm resources —

Involvement of the topmanagement (4.077)

50.961 0.81

All the organization members knew and shared the firm’smission and objectives.

0.86

The employees were aware of the progress made in theirwork areas (new knowledge, new practice development,etc.)

0.83 F2: Firm resources — Learningand knowledge of employees(1.113)

62.409 0.87

We transmitted the knowledge owned by any person andthis information was readily accessible to all his/herworkmates.

0.83

The employees were able to take initiatives and decisionson their own, thanks to the encouragement of authoritydelegation.

0.70

We adapted to the new market conditions more rapidlyand in better conditions than our competitors.

0.72 F3: Firm resources — Speedand flexibility (1.015)

73.177 0.78

We were able to make rapid changes in the product designand/or introduce new ones fast.

0.69

We were acting in accordance with the principles andpractices of quality management.

0.64

ENVIRONMENTAL MANAGEMENT — ORGANIZATIONAL ASPECTS

The firm formally communicates its environmental policyand strategy to all its employees.

0.86 F1: Environmentalmanagement — Knowledgeand learning (5.454)

60.599 0.93

The management team participates in and encouragesenvironmental management initiatives.

0.91

The firm revises environmental and procedure manualsperiodically.

0.94

The firm adapts or modifies the organizational structures(the organizational chart and the description of roleswithin the organization) if necessary to facilitateenvironmental management.

0.84

The firm removes barriers to environmentalcommunications, including the encouragement of employees to communicate directly with their managersor with other firm employees. **

The employees have the environmental competenciesrequired to develop their professional activity.

0.76 F2: Environmentalmanagement — Relationshipswith stakeholders (1.090)

72.712 0.79

When there is a desire to improve in some environmentalaspect, the firm establishes collaboration with otherfirms so that they can help to achieve the improvement.

0.76

(continued on next page)

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All constructs were measured using perceptual data, which are self-reported measurements provided by managers. Weasked for them using Likert scales. Below, we indicate how we have measured each variable in our study.

Voluntary norms (VOL)

This variable included six items drawn from Antón et al. (2004), Buysse and Verbeke (2003) and Cabugueira (2004). Weasked managers to position his or her firm on a scale of 1-7 depending on the extent of their agreement or disagreementwith the arguments related to voluntary norms.

Stakeholders (STAKE)

This variable included five items drawn from Álvarez et al. (2001), which were based on pressure from and collabora-tion with the stakeholders in their relationships with the firm. Each item was measured on a 7-point Likert response scale(1 = “There is not any pressure or collaboration”, 7 = “There is complete pressure or collaboration”).

Firm resources (FR)

This variable included eight items drawn from Aragón-Correa (1998), Christmann (2000) and Hart (1995). Managers had

to evaluate whether those resources had been used in the adoption of a proactive environmental management. Each itemwas measured on a 7-point Likert response scale (1 = “Strongly disagree”, 7 = “Strongly agree”).

Table A1 (continued)

Scale items b Standardised loadings(measurement model)

Factors (Eigenvalue) % of varianceextracted

Compositereliability

The firm gives support to experimentation with new methods,with the aim of identifying environmental improvementareas. **

The firm establishes emergency procedures to respond toenvironmental problems and accidents. **

The firm gives priority to the purchase of less harmfulcomponents and/or products. 0.73

The firm evaluates suppliers’ environmental records. 0.83The firm uses a standardized system for the treatment of

customer complaints. **The firm publishes an environmental report. 0.67ENVIRONMENTAL MANAGEMENT — TECHNICAL ASPECTSAlternative production techniques 0.62 F1 (3.272) 65.436 0.86Lower energy consumption *Consumption of renewable or less polluting energies *Lower resource consumption 0.65Simpler/clean/reusable packaging 0.85Selection of low-impact materials **Favoring the reuse of the complete product **Favoring recycling 0.87Convenient elimination/treatment/storage of the remaining

waste

0.76

COMPETITIVE ADVANTAGE ON COSTSReduction in insurance premium costs. 0.83 F1 (2.208) 73.610 0.83Cost reduction due to the unification of some administrative

and/or technical processes (e.g., with a quality managementsystem)

0.80

Reduction in regulation compliance costs (the firm avoids finesfor polluting and compensations for damages caused)

0.71

Reduction of costs associated with recycling and reuse. *COMPETITIVE ADVANTAGE IN DIFFERENTIATION Retaining current customers and/or attracting other new

customers.0.66 F1 (2.228) 74.259 0.82

Gaining brand image. 0.86Achieving greater credibility before the society. 0.83Enjoying preferential relationships with the administration. **Increasing product quality. **

Notes: n = 208. Each item is measured on seven-point scales. All loadings are significant at the 0.01 or better.a The items with (*) have been deleted following the advice of experts who reviewed the initial survey. The items with (**) have been deleted in the

confirmatory factor analysis. This items elimination process was carried out taking into account the results of the reliability analysis (Cronbach’s alpha)and the exploratory factor analysis, both of them performed before studying the measurement model, using the statistical program SPSS, version 11.0.None of the items have been deleted in the analysis of the measurement model in the structural equations model.

b All constructs are measured using perceptual data, which are self-reported measurements provided by managers. We ask for them using Likert scales.

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Environmental management (EM)

We considered two groups of items to measure the proactiveness of the environmental management drawn from dif-ferent studies (Carmona-Moreno et al., 2004; Judge and Douglas, 1998; Melnyk et al., 2003). The first category was relatedto organizational aspects of environmental management (thirteen items), and the second group was related to technicalaspects (nine items). We used Likert scales for the operationalization of those constructs. Managers were asked to evaluateon a range of 7-points from 1 (“They had not addressed that issue”) to 7 (“They were leaders in that practice in their in-dustry”) whether they had adopted those environmental practices.

Competitive advantage (CA)

We considered two groups of items to measure that variable: competitive advantage on costs (CAC) (four items) and com-petitive advantage on differentiation (CAD) (5 items), which were drawn from Christmann (2000), Karagozoglu and Lindell(2000) and Wagner and Schaltegger (2004). Through 7-point Likert scales, managers rated his or her organization’s com-petitiveness relative to that of other firms in the industry.

Control variable (SIZE)

Environmental management researchers have emphasized the need to control for firm size, which was measured by thelogarithm of a firm’s number of employees.

Exploratory principal components analysis with varimax rotation of the items showed that all of the constructs wereformed by one significant factor, except firm resources and organizational environmental management constructs. Specif-ically, firm resources was formed by three factors: actions and degree of involvement of the top management in the firm’soperations, learning and knowledge of employees, and speed and flexibility with which the firm carries out changes to adaptto new environmental conditions. Organizational environmental management was formed by two factors: organizationalaspects linked to knowledge and learning in the development of environmental practices, and variables that reflect the linkbetween the firm and its stakeholders during the development of the organization’s environmental management strategy.

We tested for non-response bias by comparing early and late responses of firms in terms of all model variables, sincelate respondents can be expected to be more similar to non-respondents (Armstrong and Overton, 1977). The dataset wasdivided into thirds, according to the number of days from initial mailing until receipt of the returned questionnaire. St-udent’s t between the first and last thirds indicated no statistically significant differences (t-tests; p > .05) in the mean responsesfor all the variables measured. Therefore, non-response bias is presumed not to be a problem in this dataset.

Next to response bias, self-assessment and use of only one survey instrument may have been a cause for distortions inthe data set, in particular concerning common method bias. For the data used here a number of procedural and statisticalsteps were taken to ensure that common method bias is minimized or at least reduced. We used the procedural remediesrelated to survey design suggested by Podsakoff et al. (2003). First, we guaranteed response anonymity and we did not revealthe exact goal of the survey to respondents. Second, the survey items related to the exogenous variable followed by, ratherthan preceded by, the endogenous variables. Lastly, in order to address the issue of common-method bias statistically, weperformed Harman’s single factor test (Harman, 1967). This test requires that we load all items used to measure both ex-ogenous and endogenous variables into a single exploratory factor analysis. The analysis produced three factors with eigenvaluesgreater than 1. Taken together, those factors explained 67.07% of the variance in the data, with the first extracted factor ac-counting for 40.50% of the variance in the data. Given that more than one factor was extracted and less than 50% of thevariance could be attributed to the first factor, common method bias was unlikely to be a significant issue with the collect-ed data.

Appendix B. Analysis of the research model

We used structural equation modeling (LISREL 8.5) to examine our hypotheses, using maximum likelihood (ML) withrobust estimators (Satorra and Bentler, 1994) as a method to estimate the parameters, because it was not valid to assumemultivariate normal distribution and the measurements for some variables were not continuous. Our input matrix was theasymptotic variance-covariance matrix. LISREL is a computer program that analyzes covariance structures. It is consideredto be the most general method for the analysis of causal hypotheses, which is carried out in accordance with a two-stepmethodology to avoid the possible interaction between measurement and structural equation models. The structural modeldescribes the relationships among theoretical constructs, while the measurement model consists of the relationships betweenobserved variables and latent constructs they measure. According to this procedure, after the model has been modified tocreate the best measurement model, the structural equation model can be analyzed (Liu, 2009, 1483).

Table B1 presents the means, standard deviations, reliability coefficients, and correlations among the variables. Giventhat no inter-factor correlation is above the recommended level of 0.70, multicollinearity, and hence problems created by alack of discriminant validity, are not likely to bias our results. Discriminant validity is measured calculating the reliability

coefficients of the concepts and comparing them to the bivariate correlation between pairs of constructs. All reliability co-efficients exceed the recommended 0.6 level and are greater than the correlation between the two constructs of interest.

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Moreover, all relevant factor loadings are greater than 0.5, a very conservative cut-off level (Hair et al., 2006), except for thecase of the voluntary norm, “It represents a marketing opportunity for the firm” (0.48), which we decided to retain becauseof its importance in preserving the content validity of the scale. If we eliminated this item the conceptual and theoreticalnature of the construct might change. We indicate the theoretical basis for retaining this item. Antón et al. (2004) showthat adopting voluntary norms may be in the self-interest of firms to voluntarily reduce pollution and in order to pre-emptthreats of stricter mandatory standards and capture new market opportunities. Cabugueira (2004) indicates that when firmsplace environmentally aware products or services in the market they can benefit from a greener image and a consequentimproved relationship with consumers, public authorities and other stakeholders.

The process of testing the measurement model is basically a confirmatory factor analysis (CFA) task, based on knowl-

edge of theoretical and empirical research, the hypothesized connection between the observed measures and the underlyingfactors postulated a priori is statistically tested. CFA was conducted to assess model fit ( Jöreskog and Sorbom, 1993) for themeasurement model, using some common model fit measures: χ 2 Satorra-Bentler, RMSEA, GFI, NFI, CFI, normed χ 2. The fitindices should have values of 0.90 or greater and RMSEA should range between 0.02 and 0.1. In fact, the measurement modelsexhibit overall good fit (Table B2). Table A1 (Appendix A) shows the standardized item-factor loadings. All relevant factorloadings are greater than, or near to, 0.6, a very conservative cut-off level (Hair et al., 2006). There is no need to re-specifyor refine the model.

Then, the structural model is examined based on the measurement model. Seeking to reduce the number of parametersto estimate, we resorted to the formation of compound variables, so that a single indicator resulting from the sum of twoor more variables could determine each factor (Gribbons and Hocevar, 1998; Landis et al., 2000). We created a partial ag-gregation model, which involved the combination (through summing or averaging) of items into subsets, which, in turn,

Table B1

Means, standard deviations, and correlations

Mean s.d. 1 2 3 4 5 6 7 8 9 10 11 12

1. Size 4.8 0.97 —

2. Voluntary norms 4.5 0.74 .19** 0.64

3. Stakeholders — Level of collaboration

4.7 0.93 .19** .34** 0.78

4. Stakeholders — Degree of

pressure exerted

3.7 0.88 .15* .38** .34** 0.89

5. Firm resources — Involvement of the top management

5.1 0.85 .13** .17* .15** .33** 0.81

6. Firm resources — Learning andknowledge of employees

4.5 0.85 .09 .18* .36** .29** .46** 0.87

7. Firm resources — Speed andflexibility

4.6 0.76 .15** .24** .45** .39** .45** .53** 0.78

8. Environmental management —Knowledge and learning

5.9 1.06 .18** .39** .37** .48** .42** .29** .40** 0.93

9. Environmental management —Relationships with stakeholders

4.9 0.90 .14** .43** .42** .53** .37** .32** .42** .55** 0.79

10. Environmental management —Technical aspects

5.5 0.93 .16** .48** .44** .57** .31** .29** .44** .51** .48** 0.86

11. Competitive advantage on costs 5.3 1.11 .10* .41** .43** .52** .29** .22** .32** .44** .45** .43** 0.83

12. Competitive advantage indifferentiation

5.1 1.07 .15** .36** .32** .56** .24** .23** .36** .44** .41** .48** .38** 0.82

Scale reliabilities (composite reliability) are on the diagonal in boldface.* p < 0.05; ** p < 0.01; ***p < 0.001.

Table B2Fit statistics for the measurement model

χ2 Satorra-Bentler (df)p-value

RMSEA 90% confidence interval forRMSEA

GFI AGFI NFI NNFI CFI NC (χ2 /df)

VOL a 0 (1) / 0 0 — 1 1 1 1 1 —STAKE 4.77 (4) / 0.31 0.03 (0.0;0.11) 0.99 0.96 0.99 0.99 0.99 1.19FR 13.69 (10) / 0.19 0.04 (0.0;0.092) 0.97 0.94 0.97 0.97 0.99 1.38EMORG 41.26 (25) / 0.02 0.05 (0.021;0.085) 0.94 0.89 0.96 0.96 0.98 1.65EMTEC 8.79 (5) / 0.12 0.06 (0.0;0.125) 0.98 0.94 0.98 0.98 0.99 1.76CAC a 0 (1) / 0 0 — 1 1 1 1 1 —CAD a 0 (1) / 0 0 — 1 1 1 1 1 —

Variables = VOL: voluntary norms; STAKE: stakeholders; FR: firm resources; EMORG: environmental management–organizational aspects; EMTEC: envi-ronmental management-technical aspects; CAC: advantages on costs; CAD: advantages in differentiation.

a Three indicators represent the scales VOL, CAC and CAD; therefore, there are not enough freedom degrees to estimate the models. For the purpose of

obtaining freedom degrees, we fixed the regression coefficient of the first variable at 1. This permitted us to calculate the goodness-of-fit indicators, thefit considered perfect ( χ 2 = 0, df = 1; GFI, AGFI, NFI, NNFI, CFI = 1; RMSEA = 0).

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are treated as indicators of the latent construct.Including all items as individual indicators in a full SEM analysis requires a substantially larger sample size as the number

of indicators increases. Because many studies do not have the required sample sizes for the analysis, researchers often adoptcomposite formation techniques to reduce the number of estimated parameters in the tested model. Thus, to produce morestable estimates of structural relationships, researchers have sacrificed the testing of total disaggregation models in favorof partial aggregation (Landis et al., 2000, 187).

In addition to rationally grouping items, we used the exploratory factor analysis method to perform an exploratory factoranalysis of each scale and assign items based on their factor loadings. Unlike the factor analytic method, this approach wouldlet the chips fall as they may in terms of creating composites. If a two-factor solution fits a given set of items best, it wouldbe preferred. Alternatively, if a three-factor solution provided a better fit, three resulting composites would be used. Thisapproach provides a complementary perspective on the content-oriented strategy in that no a priori decisions are madeabout the number of composites.

As Edwards (2001, 165) suggests, measurement error was taken into account by measuring each latent results variableusing a single indicator, formed as the mean of all items used to assess the corresponding latent variable. The loading of the single indicator was set to 1, and the variance of its measurement error set to 1 minus the reported reliability of themeasurement multiplied by the variance of the measurement.

The overall fit of the data to the structural model is evaluated by the same set of fit indices used for the measurementmodel. The normed χ 2 is 1.59, which is below the recommended threshold of 3, while the structural model exhibits a fitvalue satisfying the commonly recommended threshold for the respective indices, thus providing evidence of being a goodmodel: GFI = 0.91, NFI = 0.90, CFI = 0.93, RMSEA = 0.06. These results suggest that the structural model fits the data ade-quately. Moreover, all of the modification indices for the beta pathways between major variables are small, suggesting thatadding additional paths would not significantly improve the fit.

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Biographies

María D. López-Gamero is a Senior Lecturer in the Department of Business Management at the University of Alicante, Spain. She received her PhD inbusiness management from the University of Alicante. Her research interests include determinants of firm performance and the relationships between

strategy, quality and environmental management. E-mail: [email protected]

José F. Molina-Azorín is a Senior Lecturer in the Department of Business Management at the University of Alicante, Spain. He received his PhD in busi-ness management from the University of Alicante. His research interest is strategic management, with particular focus on competitive strategies, strategicgroups, determinants of firm performance, the link between strategy and structure, and the relationships between strategy, quality and environmentalmanagement. E-mail: [email protected]

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