Impacts of environmental regulations on firm performance : the development of a new perspective

Sammanfattning: Currently there are two dominant theories by professor Michael Porter explaining how firms could increase profitability by acting sustainably and what the potential outcome of complying with environmental regulations may be. The Porter hypothesis is about the impact of regulations and has further been developed into ‘creating shared value’ which explains how firms can reach new potential profitability by searching for sustainable business opportunities. Both of these theories are viewed separately and not in conjunction with one another even though one has motivated the other. Furthermore, the theories underlie a stakeholder theoretical approach, meaning that firms should focus on all various stakeholders in a firm, instead of a shareholder approach, which argues for firms to focus solely on profitability and shareholder value maximization. So far studies have been inconclusive regarding the validity of the theories and scholars find evidence both for and against. The aim of the study is to evaluate the two theories in order to understand if a relationship exists between them and moreover the impact of shareholder theory versus stakeholder theory is examined to view if firms have different outcomes when faced by regulations. The focus of the study is on how firms respond to regulations and how they work to become compliant whilst simultaneously remaining or increasing profitability. To analyze these theories, a qualitative case study is performed deductively with five firms in different industries and of different sizes that are affected by new environmental regulations concerning single-use plastics. The study found that out of the five firms, three were shareholder-oriented and two were stakeholder-oriented. The shareholder-oriented firms achieved or projected increased profitability and shareholder value in response to the new environmental regulations whilst the stakeholder-oriented firms achieved the opposite. The conclusion of this study presents a new conceptual model which shows the relationship between the Porter hypothesis and ‘creating shared value’ where this relationship underlies shareholder theory. The empirical findings show that the Porter hypothesis is strongly connected to ‘creating shared value’ and shareholder theory is the foundation for firms that increase profitability after complying with environmental regulations. The implication of this is that firms do not directly need to consider sustainability in their business models. Regulations will push firms to be sustainable as well as to maximize shareholder value and firms which have a sustainability outlook in their business will likely fall behind when faced by regulations.