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ROLE OF ENVIRONMENTAL PROACTIVITY IN PERFORMANCE OF

MANUFACTURING FIRMS: A MODERATING EFFECT OF FIRM SIZE

By

Kashif Munir
211 MSBA/Lhr/F 14

A Research Proposal Submitted to the Faculty of Management Sciences,
National University of Modern Languages, Islamabad
in partial fulfillment of the requirements for the degree of
(MSBA)

Supervisor Name:
Mr. Saif Ullah

DEPARTMENT OF MANAGEMENT SCIENCES
NATIONAL UNIVERSITY OFMODERN LANGUAGES
ISLAMABAD
SEPTEMBER, 2015
Role of Environmental Proactivity in Performance of Manufacturing Firms: A Moderating
Effect of Firm Size

2001). In the whole world it is compulsory for manufacturing concerns to adopt proactive approaches to the environment (Swain. Environmental Proactivity is very important as it is considered as strategic position by accepting the challenges of the new sustainability standards. Those benefits can be ascertain from proper environmental management. Bodwell. These practices are well appreciated by stakeholders. Introduction Today all types of manufacturing firms rather they are small or large. These type of practices have been considered as one more side of the environmental commitment (Florida and Davison.1. In this era many manufacturing firms are working on the environmental management practices. 1995). polluting the environment. 1 . It is need to work actively to environmental proactivity. This enables organizations to contribute sustainable development in the environmental management through redesigning the manufacturing procedures (Shrivastava. However Waddock. To compliance with the environmental regulations of the government they take proactive measures. Environmental proactivity mean voluntary employment of practices and initiatives aimed at improving environmental performance. The actions taken in favor of the natural environment. Porter and Linde (1995) said that adoption of environmental proactive approaches leads to be beneficial for the companies while giving importance to green technology. Graves (2003) said that increasing transparency required from companies in matters of social responsibility forces them to inform not only about their financial performance but also about their environmental and social impact. This can become visible through different strategies and these strategies are characterized by a series of environmental practices. The communicational practices aim at communicating to the company’s social and institutional environment. 2006).The purpose of this study is to investigate the impact of firm environmental proactivity on the firm performance. Moderating effect of firm size will be checked between environmental proactivity and firm performance. However.

Chan. Several factors can indicate a firm to adopt environmental management practices (Berry and Rondinelli. 2 . those corporations investing in environmental management may increase in worth through green marketing initiatives (Woolverton and Dimitri. Organizations want to reduce cost. promoting reduction in cost. According to González (2006) stakeholder pressure is driving companies toward more advanced environmental management. There are different reasons leading to climate change. 1998). This results in an increase in the company’s manufacturing effectiveness. Discharge of solid waste and wastewater of manufacturing process have become the significant reason of degrading the environment quality (Pizer. Henriques & Sadorsky. Lopez. Lin. Bowen (2002) found that the smaller enterprises generally invest its limited resources towards environmental practices. Shih. In doing so. 1995). The owners of firms are concerned whether environmental proactive approaches are positively related with the perceived financial performance of the companies or not. Claver. This study aims at finding the said relation. Azorin. 2010). quality improvements and the generation of new products and processes (Yang. Larger firms allocate more proportion of resources for environmental proactivity. This has become the reason of proactive role of environment in running businesses. Morgenstern. The worsening environmental conditions owing to emission of greenhouse gases and other polluting substance during manufacturing processes. Tari.These practices are the main way through which some of them form an opinion about the environmental performance of the company. (2010) the firm size also have effect on the environmental management. With the increase of the population’s environmental awareness. The more progressive environmental management can also improve a company’s perceived financial performance (Molina. According to Darnall. 2011). Energy inefficiency and inefficient supply chain becomes the reason of more waste and it affects the perceived financial performance of the manufacturing concerns. Sheu. increase revenue and reduce the risk associated with high energy costs. larger firms allocate a greater proportion of resources towards environmental lobbying activity and other activities that resist environmental change. 2010). They can also be derived from improved operational performance of the organizations like reduction in the production cost (Porter and Linde. 2009).

In the manufacturing sector. So this study is designed to investigate the impact of environmental proactivity on the performance of the firms. smaller firms are less likely to invest their scarce resources in political resistance. 2012-2013).3 percent share in Manufacturing (Government of Pakistan. Rather. 2012-2013).e. Manufacturing is the second largest sector of the economy of Pakistan after agriculture sector and it accounts for 19. Manufacturing accounts 13. So manufacturing sector take significant part of the gross domestic product of Pakistan (Government of Pakistan. large scale manufacturing plays a vital role and accounts for approximately 70 percent of overall manufacturing (Government of Pakistan. Large Scale Manufacturing (LSM) at 10.4 percent during 2007 and 10 percent last year. Economic Survey of Pakistan. Manufacturing is important part of economy of Pakistan. 2002).1 percent of total employed labor force.5 percent of Gross Domestic Product (GDP) and 14.7 percent of total GDP and 12.By contrast. when faced with external pressure for environmental consideration.9 percent of GDP dominates the overall sector accounting 81 percent of the sectoral share followed by Small Scale Manufacturing which accounts 1.1% of GDP.1 Problem Statement Whether the environmental proactivity ha impact on firm performance. 3 . the smaller enterprises generally invests its limited resources to address the immediate environmental concern (Bowen. It was stated in economic survey (2006-07) that industry grew by 8. 1. Large Scale Manufacturing (LSM). (2012-2013) further classified manufacturing sector into three sub groups i. Pakistan is developing nation in South Asia. It will also check the moderating effect of firm size on the firms performance and environmental proactivity. Small Scale Manufacturing. 2006-07). Government of Pakistan (2006-07) organizations are working to develop their environmental system in Pakistan.

To investigate the relationship between Environmental Proactivity and Perceived Financial  performance. On the basis of this study the better environmental practices can be implemented in the country. 4 . So. this study might be unique because it will discuss the impact of environmental proactivity on firm performance. But no study was found regarding environmental proactivity and firms performance relating to Pakistan. To investigate the relationship between Environmental Proactivity and Operational  Performance. It will improve the stakeholder’s involvement in organizational policies. Moderating effect of firm size between Performance and Environmental Proactivity will add in existing literature. From the practical point of view the government environment protection department can make effective policies according to size of firm due to moderating affect.1 Does Environmental Proactivity has an impact on the operational performance? RQ-1.2 Research Questions RQ-1 Does Environmental Proactivity has an impact on the firm performance? RQ-1.2 Does Environmental Proactivity has an impact on the perceived financial performance? RQ-2 Does the Firm Size moderates the relationship between Environmental Proactivity and Firm Performance? 1. To investigate the moderating role of Firm Size between Environmental Proactivity and Firm Performance.4 Significance of the Study A huge discussion on previous studies has been described regarding firms performance with respect to other countries.1.3 Research Objectives The objectives of this study are   To investigate the relationship between Environmental Proactivity and Firm Performance. 1.

2010). Badurdeen. Lamming. Subramanian. They will be able to make better policies based on this study. However one of the most cited predictors of the implementation of green supply is the proactivity of the firms towards environmental management (Bowen. 2010). Faruk.. On the basis of this study firms will be able to improve their performance by reorganizing their policies regarding the environment. Jawahir. Reducing raw material and water consumption not only helps to prevent rapid depletion of natural resources but also helped the manufacturing firms to work financially better (Jayal. Environmental practices are very important in relation to the environmental proactivity. Dillon Jr. Another means of increasing worth occurs when firms announce their adoption of ISO 14001 environmental management systems. Literature Review 2. Teixeira.1 Environmental Proactivity: Environmental Proactivity is very important in the context of manufacturing firms. 2. 2013). The corporate policy makers will get help from this study. Power. Freitas. They also found that the manufacturing firm performance is affected through environmental proactivity. 2001). companies that invest in environmental management may increase in worth through green marketing initiatives (Woolverton and Dimitri. 2010). Cousins. Singhal. Newton and Harte (1997) consider that the literature on environmental management adopts a linguistic position which is based on questionable ideas. 5 . Sharma and Vredenburg (1998) said that a firm is environmentally proactive if there exist regular environmental practices in overall production processes. Govindan. Following Simpson. Environmental proactivity often got reflected in the planning of manufacturers to get ISO 14001 certificates (Jabbour. With the advancement of the population’s environmental awareness. In current competitive period environmental commitment of the companies becomes very important. Arago’n (1998) has given environmental proactivity concept in the management literature. This system tended to generate an increase in share value traded on stock exchanges (Jacobs.Firms will get benefit from this study. Samson (2007) environmental commitment is measured through the firm’s policies. values and employee awareness of environmental programs.

Operational practices are important as they used to reduce and control negative effects of waste and pollution in the manufacturing process. Sambasivan. Reno. 1999). which plays an essential role in environmental issues (Klassen and Angell. Those products are environment friendly (Smith and Yen.2. Decision about environment friendly product are taken by the top management of the manufacturing enterprises to improve environmental performance by applying the principles of sustainability (Vachon and Klassen. Jo-Ann. Saiku. Operational performance considers the prevention or controlling activities against environmental pollution occurred other than the manufacturing process. Customers demand these products because those products do not harm environment. 2008). Authors such as Murphy. Truzzi. However other practices affect external processes. Bah. and influence supply and distribution activities and. discussed these practices. Sevegnani. (1994). Ho. As majority of researches have found that environmental proactivity is positively related to the operational performance (Gonzalez and Gonzalez. 2010). Operational performance leads to improve the overall quality of the enterprises while gaining financially (Silva. Operational practices leads to reduction and fall in the wastages which are linked with the disposal of all type of materials and products (Curkovic. Environmentally conscious customers demanded those products which are designed according to environmental regulations. Sevegnani. in general. Operational performance is related with the environmental proactivity. Firms operational performance affected with the implementation of environmental proactivity. 2003).2 Operational Performance: The operational performance on eco-friendly procedures considered economical approach. 2005. company interactions with other elements of the value chain. 2013). Poist and Braunschwieg. The operational practices which leads to operational performance imply changes in the production and operations system. Wu and Dunn (1995). 2013). 6 .

Firm’s response to the environmental requirements of its stakeholders is influenced by its existing level of environmental commitment (Henriques and Sadorsky. Bah. Min and Galle (2001) established the importance of size in the adoption of environmental practices in the purchasing function. 2007) argued that there is a positive relationship between the environmental proactivity and financial performance. Govindan. 2. Molina. Brown and Stango.Gupta. Because the smaller firms generally have significantly different resources from the larger firms (Dean. Teixeira. Environmental proactivity can also lead to improve the perceived financial performance through operational performances (Toke . Dandekar. Lopez. 1998). In case of limited financial resources how environmental proactivity influences financial performance. Walley and Whitehead. Some researchers said that large firms are more responsive to environmental regulations. Recent studies (Claver. Another study by Alvarez. Freitas (2013) have proposed a number of constructs (latent variables) and variables (manifest variables) that can influence the financial performance of the manufacturing enterprises through environmental proactivity. (1994) conclude that there is no significant relationship between environmental proactivity and financial performance.4 Firm Size: Firm size is important in respect to the environmental proactivity. 7 . Arora and Cason (1996) found that there is a positive and significant relationship between firm size and participation in voluntary environmental programs.2. (2013) and Jabbour. Jo-Ann. Jabbour. When firms grows then it will lead to betterment of the economy as well. Iwata and Okada. Tari. Saiku. Smaller firms seek competitive advantage. Ho. Researchers like Sambasivan. Burgos. Saiku. Bah. Cespedes (2001) also found a positive relationship between size and environmental proactivity in a service sector. 2013. 1999). 2012). Ho.3 Perceived Financial Performance: Perceived financial performance is most important criteria from the perspective of any enterprise as the ultimate goal of any manufacturing enterprise is making money. Jo-Ann. it is found controversial among the researchers (Sambasivan. 2011).

Lamming. In their study Darnall.Bowen.1 Theoretical Framework Firm Size Firm Performance Environmenta l Proactivity a) Operational Performance b) Perceived Financial 2. a construct that shares similarities with our green supplier assessment approach.2 Hypotheses H-1 Environmental Proactivity has an impact on firm performance. H-1b Environmental Proactivity has impact on perceived financial performance. (2007) said that larger firms were associated with environmental proactiveness to a greater extent than smaller firms. H-2 Firm size moderate the relationship between environmental proactivity and firm performance. Cousins. H-1a Environmental Proactivity has relationship with operational performance. (2001) found a positive and direct impact of environmental proactivity on greening the supply process. Faruk. Henriques and Sadorsky. H-2a Firm size moderate the relationship between environmental proactivity and operational performance. 2. 8 . Etzion. H-2b Firm size moderate the relationship between environmental proactivity and perceived financial performance. (2010) said that size moderates the relationship between stakeholder pressures and the adoption of proactive environmental practices such that the relationship is stronger for small firms.

current study has been conducted through quantitative research as it is appropriate to provide extensive information. “to little extent”. Ahmed.3 Sampling Questionnaires will be got filled from 150 companies. The sample size will be 300 (Silk and Urban. prediction of variables. Research Design and Methodology 3. hypothesis testing and evaluating cause and effect relationship. acquisition and analysis of numerical data. Purpose of research is explanatory as well as descriptive. 3. 1977). Adil. There will be two questionnaires filled from each company.4 Unit of Analysis Unit of analysis will be firms and the unit of observation will be management level employees. to a moderate extent” and to large extent respectively. Research design for current study is cross-sectional as data is collected at a single point of time.3.5 will be used to represent “not at all”. 9 . 2014).4. 3. Veinhardt.2 Population The population of this study will consist of large and small firms involved in manufacturing in Pakistan. 3.1 Nature of the Study Data will be collected from the manufacturing firms. to some extent”.3. Questionnaire contained closed ended questions. Generally.5 Measures The participants will have to answer the questions on five point Likert scale where the degrees of 1.2. 3. The companies will be selected on basis of convenient sampling (Alvi.

It also leads to improve financial performance through operational performance (Sambasivan. JoAnn. dependent variable and a moderating variable. Bah. 2013).3. Saiku.7 Measurements Selection of variables is strongly influenced by the previous studies on subject under discussion. Sample items include “Top management of my company supports the environmental training” and “Regulations imposed by the government are followed by my company”. 10 . three equations will be developed for each dependent variable. 10 Important items regarding Environmental Proactivity will be used and measured on five point Likert. Yi = α 1 + β1i + € Based on above equation. There are independent variables. Firm Performance = α + β1 EP +€ Firm Performance = α + β1 EP + β2 FS + β3 (FS)(EP) + € Operational Performance = α + β1 EP + β2 FS + β3 (FS)(EP) + € Perceived Financial Performance = α + β1 EP + β2 FS + β3 (FS)(EP) + € Where FS= Firm Size EP= Environmental Proactivity 3. That is called performance.6 Model To study relationships following model will be used. The mentioned variables will be used to test the hypotheses of the study. Environmental Proactivity: Environmental Proactivity helps firms to improve their operational performance based on manufacturing and non-manufacturing activities.

Dandekar. Firm Size: Firm size will be used as dummy variable.Operational Performance: To measure operational performance. 2012). Sample items include “In my company revenue is increased due to implementation of environmental regulations” and “In my company production cost is decreased due to better environmental practices”. 2000). 1997. Gupta. 2012). It considers the prevention and controlling activities against the environmental pollution occurred other than the manufacturing process (Toke. each surveyed manager will asked to score the relative position of his firm with respect to competitors according to the competitive objectives considered in (Slack. 11 . Dandekar. 1998). Gupta. Perceived Financial Performance: Perceived Financial Performance is most important criteria for any organization. And the size of firms will be based on number of employees working in the organization (Russo and Fouts. Because it is ultimate goal of every company to gain profit (Toke. 7 Important and relevant items regarding Operational Performance will be used and measured on five point Likert. Chambers. Sample items include “My Company is focused on reduction of emission to air” and “My Company is focused on reduction of raw material consumption”. Christmann P. 5 Important and relevant items regarding Perceived financial Performance will be used and measured on five point Likert. Johnston. Harland. Harrison.

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5 Extent To Some 2. Your responses are voluntary and will be confidential. Responses will not be identified by individual. My company identifies environmental issues as an opportunity to innovate and improve. Not at all (Tick only one number for every statement ) 2. The management of my company made environmental emergency plans.4 Extent To Little 2.7 2.09 2. Given below the statements about Environmental Proactivity 2. Personal Information a) Name: b) Gender: c) Age: ( )Below 25 ( )26-35 ( )36-45 ( ) Above 45 g) Marital Status Single ( ) Married ( ) f) Designation: 2.8 2. Thank you for your valuable input and cooperation. My company gives regular voluntary information about environmental management to customers and institutions. The management of my company is following an approach to increase environmental expenditure. My company is working with production planning by reducing waste. My company have ISO 14001 certification.1 ( )M 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 1 2 2 3 3 4 4 5 5 1 2 3 4 5 . The employees of my company are devoted to environmental management.Appendix SURVEY QUESTIONNAIRE Dear Sir/Madam! This survey is being conducted to understand Role of Environmental Proactivity in Performance of Manufacturing Firms. The results will be used for research purposes only.3 Top management of my company supports the environmental training.2 ( )F h) Total Experience (in years): 2.10 16 Extent To Large 2. 1. All responses will be compiled together.6 Extent To Moderate 2. My company have system for measuring and assessing environmental performance. Regulations imposed by the government are followed by my company.

1 In my company revenue is increased due to implementation of environmental regulations.3 Due to environmental proactivity there are new market opportunities led to economic benefits.6 3.1 Not at all 2.7 perceived financial performance. 4. Due to environmental proactivity there is sale of scraps in my company. 5. My company achieved overall cleaner manufacturing system. My company is focused on reduction of raw material consumption. My company is focused on reduction of wastes by recycling.5 3 1 2 3 Extent To Moderate 3. Not at all 3. 4. 4. Follo 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 No of Employees . Below are a number of statements that describe 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 To Large Extent 3.2 In my company production cost is decreased due to better environmental practices.1 How many employees are working in your organization? 17 To Large Extent To Moderate Extent To Some Extent To Little Extent 3. Following statement indicate Firm Size. 4. My company is focused on reduction of energy consumption.4 In my company improved environmental performance of firm leads to improve market share. 4. My company is focused on reduction of water consumption.2 wing state ments My company is focused on reduction of emission to air. 4.5 Profitability is improved by following environmental policies.3.3 1 To Little Extent 3.4 2 To Some Extent 3.