The Nexus between Environmental Cost and Financial Performance: A Trend Analysis Approach

Document Type: Original Research

Authors

1 Department of Economics, Accounting and Finance, Bells University of Technology, Ota, Nigeria

2 Department of Accounting, Covenant University, Ota, Nigeria

Abstract

This study examines the impact of environmental cost on the financial performance of listed manufacturing firms in Nigeria from 2008 to 2016. The relationship between environmental cost and financial performance of manufacturing firms in Nigeria was tested using a sample of 126 firm-year observations covering 14 manufacturing firms in the period from 2008 to 2016. The data extracted were analyzed using trend analysis graphs and panel least square method of regression. The study document a positive and significant relationship between Return on Equity (ROE), employee benefit and staff training. The authors also found a negative and insignificant relationship between Return on Equity (ROE) and donations. The result suggests investment in environmental cost indicates a good return in terms of financial performance. This finding will help eliminate the bias that investment in environmental cost is detrimental to the performance of companies in Nigeria. In the light of the empirical findings, manufacturing firms will gain a better understanding of the status and importance of environmental investment and that environmental investment is not necessary implies decline in financial performance. This implies that firms will report quality environmental issues in their corporate reports in order to benefit users of financial information. Given the important role of the manufacturing sector on the Nigerian economy, this is the first study of its kind investigating the impact of environmental cost on the financial performance among manufacturing firms in Nigeria. The study tackles the issue of donation and employee benefits in the context of environmental cost which similar studies were not able to examine.

Keywords


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