Environmental performance, political connection, and financial performance: evidence from global oil and gas companies

Abstract

Based on the natural resource-based view theory, firms with improved environmental performance will have higher financial performance. Conversely, the neo-classical economic theory argues that improved environmental performance leads to lower financial performance. We argue that these contradicting findings are due to the political connection and treat it as the moderating variable to strengthen the positive effect of environmental performance on financial performance. Using carbon emission, spill volume, and total environmental fines as the environmental performance proxy, we only find that spill volume has a positive relationship with oil and gas companies' financial performance, supporting the natural resource-based view theory. Our results also show the positive effect of political connection on financial performance, supporting the helping-hand theory. Meanwhile, the moderating effect of political connection is only significant in weakening the negative impact of spill volume on financial performance. Practically, government regulation that bans the involvement of politicians in the boards of the oil and gas companies may allow firms to internalize the cost of the environmental damage, and could improve the environmental performance of the firms.

Keywords: Environmental performance; Financial performance; Oil and gas; Political connections; Political interventions; Resource-based view; The helping-hand view.