Concern for the Earth or Concern for the Wealth: Motives and Influences on Firms' Adoption of Environmental Management Systems

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(1)國立臺灣師範大學管理學院全球經營與策略研究所碩士論文 Graduate Institute of International Affairs and Global Strategy College of Management National Taiwan Normal University Master Thesis. Concern for the Earth or Concern for the Wealth: Motives and Influences on Firms' Adoption of Environmental Management Systems. 王大勇 Erez Broitman. 指導教授：林舒柔博士 Advisor: Shu–Jou Lin, Ph.D.. 中華民國壹百年拾月 October, 2011 1.

(2) ABSTRACT This study explores publicly traded Taiwanese and Israeli firms holding ISO 14001 certifications in order to determine external and internal factors stimulating firms to seek environmental management standards. Expanding past research in this field, this paper presents four hypotheses regarding possible causes leading firms to seek environmental accreditation examining them using regression analysis. Results show hypotheses regarding firm size and resources are supported, while Media and green organizations’ activities as well as production types hypotheses are only partly supported or rejected. One contribution of this paper is in the expansion of current research about EMS certification by offering objective tools for EMS adoption analysis. Another contribution is in creation of new methods for approaching and encouraging firms and organizations to obtain environmental certifications.. Keywords: EMS, Environmental Management Systems, ISO 14001, Green Management.. 2.

(3) Table of Contents INTRODUCTION ............................................................................................. 4 LITERATUR REVIEW ..................................................................................... 8 ENIVRONMENTAL MANAGEMENT SYSTEMS BACKGROUND ............ 13 HYPOTHESES ............................................................................................... 22. METHODS ..................................................................................................... 30 Independent Variables………………………………………….…….34 Control Variables……………………………………….…..…….…..38 RESULTS……………………………………………………………………….40 DISCUSSION…………………………………………………………………..47 IMPLICATIONS AND LIMITATIONS…………………………....….………..54 APPENDICES………………………………………………..…….…..……….59 REFERENCES………………………………………………………….………63. 3.

(4) INTRODUCTION. In recent years, Environmental Management Systems (EMS) have become more and more widespread within various industries and firms. Awareness of environmental issues has been increasing steadily – both in media coverage as well as public concern – and along with it the demand for consideration and disclosure of ecological effect matters related to organizations’ activities. At the same time legal requirements regarding environmental concerns in many areas have also been on the increase. Whether through government legislation or by international trade rules (of organizations like the OECD, the European Union and others), new environmental regulations and prerequisites are constantly being issued in order to decrease and prevent damage to the environment. As a result, more and more organizations find themselves facing the need to improve or even completely change their work and production procedures in order to meet the required standards. Past research has not been able to point out specific industries or areas in which EMS certification is more widespread, and there seems to be no accurate means or tools at the moment for predicting whether a specific firm is more or less likely to adopt EMS measures. So far, studies on this subject have mostly researched the goals corporate managers have in mind when opting for EMS methods, while external factors affecting EMS adoption not as a part of a business plan or corporate strategy, but as a result of firms’ structure, industry and competition have not been thoroughly explored. Another type of research has been comparison between two or more countries on a national level, comparing and combining total figures. This type of research, however, did not focus on industry specific factors and so could not point out which industries are, under which circumstances, more likely to use EMS methods 4.

(5) (Van Beers & Van Den Bergh, 1997). This research aims at exploring factors behind organizations’ adoption of environmental management by describing circumstances and situations under which firms are more likely to adopt EMS methods. Based on Taiwanese and Israeli datasets, this paper attempts to point out more easily measurable motives, in terms of compatibility with a wider range of cases and industries and the simplicity of their results, as well as more objective (i.e. less biased) reasons – both external and internal ones – than those described in past research for public firms’ motives in seeking EMS certification. The reason for choosing a multinational research lies in the attempt to obtain a more general view of firms’ causes and purposes for EMS adoption. Analyzing firms in two different countries may enable us to isolate and reduce country specific factors and provide more general information for possible application of the findings to different country settings in the future The economies of Taiwan and Israel share several similarities, yet at the same time vary in size and certain characteristics. In general lines, both countries are comparable in terms of their position in the global economy. GDP per capita reports in 2009, the last year this research’s financial data covers, show Taiwan and Israel were ranked 37th and 43rd in the world, respectively (CIA, 2009). Roughly two–thirds of both countries’ GDP comes from services, while the industrial sectors account for the other third with agriculture accounting for a negligible percentage. Both countries are well known for their electronics and information technology industries and both are relatively poor in natural resources and have to rely on imports of raw materials for energy production. On the other hand, several dissimilarities exist as well. Unlike Taiwan, there are 5.

(6) no important Israeli firms manufacturing private consumer goods such as computers, cell phones or vehicles, while Taiwan differs from Israel in the lack of weapons, agricultural technology and diamond processing industry. Size and population differences (Taiwan is about 3 times larger in both aspects) as well as different political situations also create notable differences. Although both countries hold strong armed forces, Taiwan, unlike Israel, is seldom in need of making use of it, and is unlikely to do so in the near future (CIA, 2009). On the whole, both countries could be considered relative laggards in terms of environmental awareness, compared with countries with similar level of progress and wealth. Only in recent years have environmental issues begun to receive attention by politicians and Media, and become a topic which is addressed in election campaigns by candidates and on a frequent basis by the Media (Kerret, 2008). In our opinion, the similarities between both countries in their economy structure and size allow us to make a reasonable comparison between the two, and at the same time decrease specific country level factors which might influence and distort the results. Until recent years, most research of EMS adoption has focused on the plant/site level, rather than firm level (Darnall, 2006). However, concentrating on the plant level might overlook the wider angle of corporate governance issues. A specific plant’s environmental certification might be due to regional or regulatory needs which the parent company is forced to comply with, and not come as part of a comprehensive environmental concern policy by the firm, or in other words – plant level research could be exploring specific and isolated cases, and not general trends. This research tries to focus on corporate level decisions for EMS adoption taken as a part of a business strategy, rather than an isolated or ad hoc decision, in an attempt to describe 6.

(7) and analyze factors affecting an entire firm’s policy, and not a specific case. Few past researches have used corporate level analysis (Henriques & Sadorsky, 1999) on environmental issues. Nonetheless, their goal was to describe and define general characteristics of corporate policy, rather than specific measures, such as ISO 14001 adoption. While keeping in mind the limited scope and effect of such a thesis paper, we do wish to define a minor goal for this research. The purpose of this paper is to identify a set of characteristics under which organizations are more likely to try and obtain EMS qualifications. This goal definition is done with the purpose of making such a description of use in the future in creation of plans for encouraging organizations to move toward environmental management and sustainable business. Should a few motives leading firms’ to EMS be singled out, more emphasis could be put on them in the future – either by corporations themselves or by governments and green organization – in order to increase awareness or hopefully even rates of adoption of these standards.. 7.

(8) LITERATURE REVIEW. Previous studies have analyzed and identified several reasons for EMS adoption. Most of these reasons are the result of researches based on surveys. In other words, they are based on managers’ replies to questionnaires and are therefore subjective and prone to have biases (Bremmers, Omta, Kemp, & Haverkamp, 2007; Darnall, 2006; Florida & Davison, 2001; Shang, Lu, & Li, 2010). The main reason for this is that a manager might provide responses complying with social expectations rather than the real considerations which brought him or her to use a certain policy; Namely, he/she might answer according to his/her own perception of what is the “right” answer, an answer which might not be similar to the actual situation and process. Needless to say, such answers could significantly distort analytical results and provide a picture differing notably from reality. A case in which a manager claims environmental concern is a top priority for his firm while actually trying the best he can to minimize EMS related expenses cannot be discovered in a research based solely on surveys and therefore, to a certain extent, puts into question the reliability of such researches. The following explanations for EMS present various grades of balancing firms’ Corporate Social Responsibility (CSR) with their financial responsibilities (CFR); while some firms manage to find the equilibrium between the two, others put the main emphasis on financial performance at the expense of social responsibility. We should not underestimate as well the number of firms which truly present sincere social responsibility and concern for the environment, even at the expense of lower immediate profits. Following are a few of the main reasons for EMS adoption according to past research 8.

(9) Environmental concern The first and most obvious incentive for EMS adoption comes from honest concern for environmental issues related to an organization. Managers aware of the ecological impacts of their firms’ actions work towards reduction of negative effects and improvement of overall environmental influence (Bansal & Hunter, 2003; Darnall, 2006; Florida & Davison, 2001). Although such altruistic measures made by business might raise some suspicions regarding their bona fide nature, we have no choice but to accept them, due to the fact research on this subject is mostly based on surveys of business firms, their replies should be taken literally. “These perceptions may not accurately reflect reality, but should be viewed as a first step toward assessing that reality.” (Florida & Davison, 2001). Nevertheless, as mentioned earlier, such an assumption risks providing a research with results considerably dissimilar than the factual ones, and affect its relevance and contribution. Government legislation and international trade regulations On the regional and national level, organizations which do not comply with local government regulations are bound to find themselves fined or even shut down unless they do the necessary adjustments to suit governments’ requirements (Berry & Rondinelli, 1998). On the international level, organizations with overseas business – whether through export, off shoring activities or joint ventures – usually have to observe the requirements of host countries in order to receive import permission and other necessary business certificates (Florida & Davison, 2001). Moreover, compliance with government regulations not only creates a benefit for a firm through avoidance of fines, but might even grant a firm the power of participating in dialogues with the government and other organizations in shaping EMS programs (Darnall, 2006; Kolln & Prakash, 2002). As utilitarian as this reasoning may be, it proves, just 9.

(10) like in many other cases of government regulation, to be quite efficient in achieving its goals. Even so, this type of government policy has to be implied with caution, in order not to drive large corporate and other organizations away to other countries where legislation and enforcement are less strict (Van Beers & Van Den Bergh, 1997). Public relations and “Green Wash” Over the last two decades “being green” has rapidly become an a–la mode term; numerous organizations, regardless of their true influence on the environment, try to introduce themselves to the public eye as ones which put ecological issues at the top of their priorities and concerns. In some cases, it is a sincere effort, while in others the actual goal is often simply an improvement of image and consequently increased exposure, sales and profits. In some cases, organizations make a real and deep change in their activities in order to obtain an EMS certificate they can present to their various stakeholders or in order to express their awareness to their ecological effects. In other cases, however, it is merely a façade, or what is referred to as “green wash” – a phenomenon in which organizations change or create some activities with positive effect on the environment, but at the same time continue causing significant environmental damage through other activities. Ironically, a byproduct of “greening” for public relations reasons could be increased environmental damage. In other words, an organization which attempts to show itself as non–polluting or using environmentally favorable methods does so by moving the polluting activities to regions where environmental regulations and enforcement are looser, thus creating an overall greater negative effect for the earth (Bansal & Hunter, 2003; Darnall, 2006). Improving internal management system, productivity, and financial benefits Several researches associate EMS with Total Quality Management (TQM) as completing methods which help achieve better control and optimization of production 10.

(11) processes (Berry & Rondinelli, 1998). According to this approach, improving environmental performance would not. only create social and ecological. improvements, but also generate economic benefits for a firm (Stenzel, 2000). The constant auditing and self–examination EMS certification requires results in creation of a good control and assessment tool for managers as well as stockholders, while more sustainable production methods could help lower manufacturing and materials costs on the long run, and decrease dependence on depleting materials, which often have higher price fluctuations. According to this approach, an organization will not invest in EMS implementation unless this process carries financial benefits for the firm. (Andrews, Darnall, Gallagher, Keiner, Feldman, Mitchell, Amaral, & Jacoby, 2001;. Darnall. &. Edwards,. 2006;. Florida. &. Davison,. 2001;. Perez,. Amichai–Hamburger, & Shterental, 2009; Stenzel, 2000) Better partnership with local communities Apart from the naturally favorable results of environmentally aware management on the immediate surroundings of firms’ facilities, the implementation, inspection and revision process itself can create an added value through improvement of ties with local communities (Florida & Davison, 2001). Large corporations’ facilities are often secluded from the communities surrounding them and in some cases hostility between neighbors and corporate might arise, due to economical, cultural or environmental conflicts. Within communities neighboring large industrial facilities, we could encounter perceptions of large corporate or firm’s need for financial success coming at the expense of their own health, exposing them to environmental hazards. This phenomenon can go beyond measurable pollution issues, like air or water quality, to the extent of fearing unreported, or even imaginary hearsay based ecological damages made by neighboring firms’ plants (Florida & Davison, 2001). In such a case, a 11.

(12) suspicion or even a rumor regarding ecological hazards originating from a plant or facility could create animosity and antagonism within adjacent communities and might affect a firm’s performance. The need to increase awareness to neighboring communities’ prerequisites and necessities opens communications channels which previously may have not existed, thus creating interaction between firms, corporations and plants personnel on one side, and neighboring communities on the other, an interaction with possibly favorable results for both sides (Bremmers et al., 2007).. The above mentioned factors are all difficult to test and prove. As mentioned earlier, the methodology used in the past for determining most of these motives is based mostly on subjective questionnaire answers and incur the risk of biased answers. This research, however, through the hypotheses presented in the next part, tries to base its definition of factors for EMS adoption on more objective tools which are easier to measure and at the same time grounded on external, rather than internal influences on firms’ EMS adoption.. 12.

(13) ENVIRONMENTAL MANAGEMENT SYSTEMS BACKGROUND. During the mid–1900, communities in various parts of the world (mainly in the West) became more conscious of the effects of pollutants resulting from industrial, transportation, and mining activities on their health, land, and quality of living. Protection of the air, water, soil, flora and fauna, as well as concerns regarding public health had begun becoming an issue on communities’ and voters’ agenda (Kerret, 2008). This emerging concern for environmental issues, and the low response of firms to voluntarily handle and resolve environmental problems caused by them, had brought government officials at local and national levels to start creating sets of rules concerning environmental performance of industries within their jurisdiction. Governments began issuing regulations and laws specifying levels and types of emissions and pollutants allowed – regulations which were partially backed with inspections and penalties for firms which did not comply with them (Andrews et al., 2001; Coglianese & Nash, 2001; Kerret, 2008). By the 1970s, these regulations encountered serious limitations. Underfunding, lack of human resources to deal with multiple environmental matters, and low interest by many communities regarding the ecological state of their surrounding environment joined managers’ view of environmental regulations as a burden on their firms’ performance. Alongside the monolithic nature of government laws, which made it very difficult to adjust and create flexibility for each organizations’ special needs and limitations. All these resulted in governments’ environmental regulations often becoming inefficient and environmental protection agencies unable to obtain the desired goals (Berry & Rondinelli, 1998; Florida & Davison, 2001). Voluntary agreements are a system which started gaining support in the Western 13.

(14) world since the 1970s. Governments and corporations, as well as other organizations opted for voluntary agreements as tools which complete and add to legislation and enforcement, or as means for creating new methods and regulations which current laws and policies do not cover (Kerret, 2008). Cutting down on long legislation processes and passing part of the responsibility for enforcement from the executive branch to the firms themselves proved to be beneficial for both sides in aspects like the amount of time spent on creating new regulations, reduction of government spending and sense of partnership between governments and the business sector . Indeed, governments may have lost part of their sovereignty by agreeing and allowing to use voluntary agreements, however they had gained a way for indirectly controlling and making sure there are no irregularities or illegal actions in areas which were not monitored at all prior to the use of voluntary agreements, and therefore could consider losing authority for voluntary agreements to be the lesser of two evils (Kerret, 2008). Similar to other voluntary agreements, Environmental Management Systems too grew as systems which decentralize the concern for environmental protection from being a solely governmental issue to the firms themselves, making each organization assume responsibility for its own actions and effect on the environment, in order to compensate for and complete governments’ shortcomings in protection of the environment (Darnall, Jolley, & Handfield, 2008; Mohammed, 2000). Ecological disasters like the Bhopal chemical leak in 1984 and the Chernobyl disaster of 1986 also accelerated public understanding of the importance of environmental issues. The United Nations Earth Summit in 1992, which declared business progress should be linked to environmental awareness put an official seal for the need to improve environmental control and create standardized environmental measures, a task the International Organization for Standardization and other 14.

(15) organizations took on themselves later on during the 1990s (Andrews et al., 2001; Kerret, 2008). Voluntary systems for environmental effect assessment and regulation have been created since the 1980s as another tool for improving sustainability and environmental protection. Many of those standards were created by non–governmental organizations in order to respond and deal with emerging ecological issues, in light of governmental regulations’ limitations (Clercq, 2002). More focused standards were set according to regional needs as well as on a specific pollutant or industry basis, creating a toolbox of possible action measures for organizations wishing to improve their ecological impact (Andrews et al., 2001). The main difference the non–governmental environmental control system has with the former is the fact it is not legally binding, and does not carry sanctions or other penalizing repercussions in case of non–participation or compliance (Oluoch–Wauna, 2001; Stenzel, 2000). On the other hand, this voluntary system offers more comprehensive and specialized tools and instructions for achieving improvement in environmental performance. In many cases these voluntary systems are based on proactive measures aimed at eliminating pollution and ecological damage through changes in the production and work process, such as using constructive–positive actions which acknowledge and reward positive actions, differing from than governmental measures, which generally check performance for any irregularities and react when any are found (i.e. punitive–negative actions, serving primarily as sanctions and not actively promoting proactive measures) (Clercq, 2002).. Several distinctions can be made regarding different types of voluntary EMS agreements. One basic distinction regards internal versus external agreements. The 15.

(16) former is a system created within a firm or a corporation in order to self–monitor its actions which affect the environment, the latter are created and enforced by external bodies and once officially obtained by a firm can serve as an unbiased proof for an organization’s environmental qualities (Kerret, 2008). Another distinction between EMS types is suggested by Bremmers (Bremmers, 2007) based on the character of the environmental management systems. EMS methods which focus solely on actions on the firm level are regarded as Internal EMS (I–EMS) while heuristic systems, concerning an entire supply chain (including all manufacturers, customers, suppliers and freight) are defined as external EMS (E– EMS). As we can see later on in this research, this distinction relates to our hypotheses of B2B manufacturers (Business–to–Business) compared with B2C (Business–to–Consumer) manufacturers.. Yet another type of distinction concerns the initiative and method for obtaining the agreement, and includes three types. The first one, which will be explored in this paper, are unilateral agreements. Cross–national institutions like the European Union or International Organization for Standardization (ISO) develop a certificate stating certain criteria for obtaining environmental production and management within an organization. Subsequently, other organizations choose, for their own reasons and motives, to adopt this certification by accepting the set criteria and opening their facilities for monitoring by the issuing organization or their representatives. These certifications can vary in their nature and demands. For instance, the European Union’s Eco–Management and Audit Scheme (EMAS) certification is given to firms or corporations as a complete unit, while ISO 14001 allows certifications for specific plants or branches independently of other parts and processes within an organization 16.

(17) or a supply chain (Kerret, 2008). The second type of voluntary agreements are negotiated agreements where government or public authorities discuss and develop specific criteria for an industry or organization in bilateral discussions, in which there is room for compromises and give and take by both sides (Clercq, 2002). In this type of agreement special requirements or limitations for a specific industry can be addressed and solved (e.g. materials use, recollecting and recycling, etc.), allowing organizations which may have found it more difficult to obtain environmental certifications to achieve this goal while at the same time keeping governments’, communities’ and the environment’s best interests. The logic behind these negotiable agreements’ flexibility lies in the fact it is often more beneficial for governments to temporarily overlook minor environmental issues on the short run in order to tackle larger issues through access to plants and firms’ facilities, than not have any inspections or control over a firm’s environmental effects at all. In other words, the end – the goal of environmental protection – justifies the means. Another type of voluntary environmental control system is a global firm–based standards system in which a specific multinational firm issues uniform mandatory regulations to all its global branches, in many cases above and beyond local regulations requirements (Angel & Rock, 2005). Companies like Intel or Texas Instruments, for instance, enforce certain environmental regulations in each facility they open around the globe, even if these regulations are not required by local law. Among the voluntary environmental standards, the most well–known is the ISO 14000 series standard, created by the International Organization for Standardization in 1996.. 17.

(18) ISO 14001 The most widely recognized global environmental standard to date. The ISO 14000 series, created by the International Organization for Standardization, all deal with environmental issues, with ISO 14001 being the most prominent one in terms of acceptance. The ISO 14000 series were introduced in 1996, with adjustments made in 2004. As of December 2009 some 224,149 organizations and firms have been issued in 159 countries and territories (ISO, 2011). The standard’s goal is described on the ISO website: “The intention of ISO 14001:2004 is to provide a framework for a holistic, strategic approach to the organization's environmental policy, plans and actions.”(ISO, 2011) The standard itself does not specify environmental performance requirements, rather than that it gives organizations general guidelines for developing EMS, and observes its maintenance through use of these guidelines. The process for obtaining ISO 14001 is comprised of two stages of inspections – before and after implementation of the ISO regulations – only after which can the ISO 14001 certificate be granted. The certificate is given for a period of three years’ time, stipulated with routine annual or semiannual checkups to reconfirm fulfillment of the standard’s requirements (SII, 2011). Adoption of ISO 14001 incurs significant expenses and costs for the adopting firms; Production line modifications are almost inevitable, sometimes to the extent of creating whole new production methods. Training, additional materials and equipment, documentation, auditing, certificate fees and many more expenses might sum up to costs of $1400US per employee (Darnall & Edwards, 2006). Although these sums are not excessively high, they might, as we suggest in one of our hypotheses, create a barrier for smaller firms in adoption of ISO 14001. 18.

(19) This research aims at creating a comparison between industries and across countries. European Union excluded, each country and region in the world, including within country state regulations, have multiple independent approaches and definitions for satisfactory environmental performance, and create different types of laws and regulations (Spatareanu, 2007). These regulations affect and are sometimes affected themselves by trade and export, as well as other economic issues, especially from larger and more influential trade partner countries (Van Beers & Van Den Bergh, 1997). In light of the fact each comparison needs a common ground to support it, we chose to use ISO 14001 as the basis for comparison between the two countries and their various industries. Being an internationally accepted standard, we can be sure that its content and specifications do not change from country to country, as well as the demands from the firms wishing to obtain it. In light of these we believe ISO 14001 is a robust and stable enough anchor for this type of research.. 19.

(20) ENVIRONMENTAL PROTECTION AND EMS IN TAIWAN AND ISRAEL. As mentioned earlier, choosing Taiwan and Israel as subject countries for this research was based on the fact they both are of comparable sizes of economy and stages of economic development. Another reason lies in these two countries’ large reliance on global trade, especially in the high-tech industry, and the fact both countries, to different extents, have external security threats forcing them to spend a large part of their budget on military expenses (CIA, 2009). These similarities on one hand, and the option of reducing country specific factors through researching more than one country on the other, have brought us to choose these countries for our research. Compared with other Western countries of similar GDP and development level, Israel has been and still lags behind in its public’s environmental awareness, legislation and enforcement (Kerret, 2008). The ministry of environmental protection, first created in 1988, has been considered since its creation to be one of the least desired offices for politicians. Its budget has, as of 2010, never exceeded 0.1% of the government’s budget (usually being significantly lower), and in recent years its share of the budget pie has been on the decrease (see appendix 1), contrary to the trend in many countries around the world (Kerret, 2008, gov.co.il, 2011). Complicated legislation procedures and severe underfunding for environmental law enforcement also contribute to the grim situation of the Israeli governments’ environmental concerns. Nevertheless, several environmental organizations have entered the relative void created by the government and through various means of actions – in particular court appeals and efforts to increase public awareness– have managed to lead many successful campaigns against polluting firms and organizations as well as constantly increase public awareness to these issues. The first ISO 14001 20.

(21) certification in Israel took place in 1996, and as of 2010 over 500 organizations hold this certificate. Compared with Israel, the government in Taiwan is in many aspects more advanced in its environmental concern, especially on issues like public transportation and recycling. However, many of these relative advantages are on the municipal level, and not part of a national plan. Compared with Western European countries, as well as South Korea and Japan, Taiwan is still considered a laggard. The Environmental Protection Administration of the Republic of China was first established in 1971, under different names, and has been under the current form since 1987. Its budget, compared with the entire Executive Yuan, has been on a relative decrease over the last decade (from over 0.45% to around 0.35% over the last years – see appendix 2)1 In addition, as shown later in this paper, Taiwan’s green organizations focus mainly on education and public rallies and, unlike Israeli green organizations, hardly ever start active actions against polluters. Most of their actions involve protests against the nuclear power plants in Taiwan, while other issues, such as global warming and pollution usually do not receive the same amount of attention.. The. first firm to apply for ISO 14001 certification did so as early as 1996 and as of 2010 249 facilities and firms have obtained it.. 1. A direct comparison between Israel and Taiwan cannot be made, as a result of the different structure of the government –In Israel the government budget includes all government spending, while in Taiwan each Yuan has its own budget. 21.

(22) HYPOTHESES Environmental awareness hypothesis Previous studies on EMS adoption (Bremmers et al., 2007) propose a double layered stakeholder theory, which divides stakeholders according to the relationship and effect they have on organizations’ actions and policy. According to this theory, there are two levels of stakeholders. The first one consists of groups having a direct effect on firms’ actions and financial results through direct business relations (this group includes shareholders, customers and suppliers). The second level includes groups with indirect effect on firms’ performance but usually no direct business connections to a firm. These groups have, sometimes to a large extent, the power of influencing firms’ policies and strategic decisions (Bremmers et al., 2007). In other words, this division distinguishes commercial from non–commercial stakeholders, by describing the latter as organizations or individuals with no means to impose direct sanctions on organizations or firms. Instead, these stakeholders reside in areas adjacent to industrial facilities (or in areas directly affected by them) and have daily contact with neighboring firms and employees. These communities might be driven into environmental action as a local initiative or by encouragement and assistance from green organizations. An even more effective non–commercial stakeholder is the Media, with its ability to create pressure on organizations through appeals to government institutions, protests and public campaigns as well as through use of favorable or unfavorable media coverage. The public knowledge, awareness and pressure on organizations’ environmental performance created by the Media and green organizations have been suggested in several researchers as catalysts of EMS adoption by organizations (Albino, Balice, & Dangelico, 2009; Bremmers et al., 2007; Darnall et al., 2008; Kassinis & Vafeas, 22.

(23) 2006). Various stakeholders can exercise pressure on organizations whose actions damage the environment. This can be done either through positive or negative reinforcements such as recommending environmentally friendly products and firms and/or by calls to boycott firms not showing any environmental responsibility. For instance, a company which is found responsible for ecological damages could suffer a decrease in sales, or a product which is pointed out as not eco–friendly could be taken off the shelves in case governments or public opinion agree with experts’ estimation of its hazards.. Accordingly, we suggest green organizations and Media as important sources of public pressures.. The number and influence of green organizations could be positively correlated with firms’ adoption of EMS methods. In a country with more green organizations we could expect more environmental activities like educational classes, public campaigns and rallies, as well as court appeals regarding environmental issues. These actions, in turn, increase public awareness about firms’ environmental performance and create more pressure on ecologically maleficent firms to improve their performance. This pressure on firms responsible for negative environmental effects could be exercised either by direct actions against polluting facilities or by introducing and promoting of alternative, eco–friendly firms and products, which can be used as substitutes or replacements.. Hypothesis 1a: More active green organizations within a society are more likely to lead to higher rate of adoption of ISO 14001. 23.

(24) Media coverage holds both risks and opportunities for organizations, in regard to their environmental performance. The power to increase public awareness through newspaper reports or articles, TV reports or internet coverage could be regarded as a “carrot–and–stick” tool for environmental issues. Organizations which have good environmental performance records, new plans for reducing ecological impact, or other green manufacturing processes records could be rewarded with free positive publicity, resulting in an improvement of their public image. Organizations could even use TV programs and channels which put more emphasis on ecological matters in order to receive free publicity this way. On the other hand, media coverage about neglecting of ecological issues or environmental damages traced back to an organization could create major public image problems which could affect firms’ financial performance on both the short and long run. A case in which this situation occurred is the KuoKuang oil refineries controversy in Taiwan in 2011, which made headlines for a long period of time in this country (Staff, 2011), and shows a good example of the Media’s power of bringing ecological issues to the public’s attention. Threat of media exposure of ecological issues could serve as a strong incentive for organizations’ scrutiny of their operations, in order to avoid such repercussions. This so called Media threat intensifies when it comes to publicly traded firms, as the ones dealt with in this research, where public reaction could be immediate and significant to a firm’s financial status (Hamilton, 1995), as, for example, was the case for British Petroleum (BP) stocks after the 2010 Deepwater Horizon oil spill, which created large fluctuations in BP share price (Economist, 2010). Another possible outcome of media coverage is increased public awareness and attention to environmental issues. Media consumers receive encouragement to further examine products and services not only 24.

(25) for information like price or nutritional value, but also for ecological footprint and post consumption handling issues.. Hypothesis 1b: More media coverage of environmental issues will be positively correlated with the likelihood of firms’ adoption of ISO 14001. B2B versus B2C Manufacturers Hypothesis Just like any product manufacturing firm, both Israeli and Taiwanese firms can be divided according to their customer type. The most basic division is comprised of B2C or B2B firms – firms selling directly to end users compared with firms who sell their products to other firms which in turn use that product as part of a finished good they sell, usually to end users. B2C firms can generally be classified as firms who have their, or one of their brands’, logos on the product, allowing consumers to identify the product with the manufacturing firm. Many EMS certificates held by B2B firms’ clients do not require similar ones to be held by the B2B firm itself. ISO 14001 certification is given for specific processes along the production line or supply chain and does not require EMS on other parts of the supply chain, nor does it actively encourage B2B producers to adopt similar methods. This attribute makes it is a strictly internal EMS certificate (Bremmers and others, 2007), which does not inquire regarding other supply chain stages. Therefore, EMS for an entire supply chain of B2B products could only be achieved should the B2B firm actively take such a step or if the downstream purchaser requires, for its own concerns, the B2B manufacturer to comply with certain environmental criteria. Under such circumstances, the advantages related to good publicity and better corporate image, which are two main reasons for ISO 14001 certification, are 25.

(26) naturally less relevant and less influential (Darnall, 2006). Furthermore, B2B firms who wish to apply for ISO 14001 could face a situation in which the significant investment incurred in this process would provide them with minimal, if any, long term profits. This research claims reasons such as end–users lower awareness of the original manufacturer identity and coordination issues between environmental enforcement bodies in different regions could lead to lower public exposure and pressure regarding possible negative ecological effects, and serve as an incentive for a B2B firm not to adopt ISO 14001. In some cases B2B firms are located in a different territory than the firm they manufacture the product for. ISO 14001, being a global standard, could simplify matters for outsider observers seeking to determine if a certain multi–national company is environmentally friendly or not. However, as we have found out during this research, ISO 14001 sometimes serves as merely a façade for firms whose choose relocating and off shoring part of their production line overseas to areas where environmental issues control is less strict than in their homeland. These NIMBY (Not In My Back Yard) circumstances could in fact enhance negative environmental effect on the planet, as many of these countries lack not only environmental regulations enforcement, but also the means for handling and solving ecological disasters are often insufficient (Darnall & Edwards, 2006).. Hypothesis 2: B2C firms are more likely than B2B firms to adopt ISO 14001 certification Imitation hypothesis According to the Institutional Theory, introduced by DiMaggio and Powell in the 26.

(27) early 1980s (DiMaggio & Powell, 1983), firms within a certain industry will tend to imitate and use similar practices as industry leaders within their respective markets’ realm in order to obtain legitimacy and establish themselves as respected competitors in their business field (Toffel & Delmas, 2005). In various industries and business fields, adoption of management or other economic measures exercised by market leaders (in terms of size or innovation) or simply other firms within an industry creates an imitation trend in which different firms adopt similar management procedures either in order to keep up with market competitors or simply in order to be able to communicate and maintain business relations within their industry (Berry & Rondinelli, 1998; Blind, 2004; Kolln & Prakash, 2002). Another similar effect is an imitation trend in which firms copy industry leaders’ practices out of fear of becoming laggards or hopes of achieving similar success as their competitors. This trend could also occur when innovators within an industry start a wave of adoption of similar manufacturing or management techniques. Not always does such an imitation trend bring improvement or better results for a firm or for an industry as a whole, but in some cases this imitation trend indeed creates new production and management standards and facilitates the advancement of products or services created by that industry. EMS adoption by market leaders or by a “critical mass” of firms within an industry could attract other firms to do the same, and create institutional pressure by making EMS a fundamental necessity for running business. Just like in the cases of building a website, opening a Facebook account, or offering online services – all of these trends which many companies found themselves almost obligated to create if they wish to “stay in the game” – firms which have not started exercising EMS might feel the need to do so either through real change in their production and 27.

(28) management methods, or through “green washing” and adopting EMS only in parts of the production processes more exposed to the public eye or stakeholders attention, in order to remain a legitimate competitor in the eyes of industry rivals, as well as in the eyes of costumers and stakeholders. (Shang et al., 2010).. Hypothesis 3: Organizations in industry segments in which ISO 14001 adoption is more widespread are more likely to obtain ISO 14001certification.. Internal resources hypothesis Implementation of EMS measures requires large investment of capital. Estimations of costs vary between initial investment of US 24,000 Dollars to 130,000 Dollars, with additional annual maintenance costs such as inspection payments (Mohammed, 2000; Perez et al., 2009). These sums include the certification process itself, to which should be added the costs of production line changes, thorough logistics issues altering, employee training, and further transition costs, which in most cases are incurred only by the firm itself. Larger organizations, with more abundant resources and financing abilities are more likely to initiate EMS implementation than smaller and medium sized organization (Darnall & Edwards, 2006). Conversely, smaller organizations are less probable to start the long and costly process of obtaining EMS certificates, even when the implementation of EMS can create long term profits, compared with current management and production methods (Florida & Davison, 2001). The reason for this phenomenon lies in the fact that lack of available funds due to low liquidity or difficulties in obtaining bank credit – a difficulty of the type small firms are more likely to face – might create a barrier for firms’ seeking EMS certification and prevent 28.

(29) them from doing so. The fact that, to the best of our knowledge, neither the Taiwanese nor the Israeli government offer subsidies or other type of support for small firms in applying EMS methods does not simplify or solve this situation, and might actually block managers with environmental awareness and concerns from acting in order to improve their firm’s environmental performance. This research examines whether internal resources could be used as determinants of ISO 14001 adoption, assuming less resources mean lower likelihood of ISO 14001 certification.. Hypothesis 4: Firms with more substantial resources are more likely to adopt EMS than those not.. These hypotheses reflect, in our opinion a relatively wide range of factors and situations which might affect and bring firms’ to adopt environmental policies, and can hopefully give us an indication on possible causes for choosing or not choosing application of EMS.. 29.

(30) METHODS Statistical Model In this study, we chose the adoption of ISO 14001 as a measure of firms’ EMS adoption. We adopted Cox’s proportional hazards model (Cox, 1972) as our statistical method, as this approach appropriately handles right–censored data. The likelihood of adoption at time t, given that a focal firm has not adopted it prior to t for each firm can be expressed as. P(t , t  t )  0 (t ) exp( 1 X 1   2 X 2     k X k ) , t 0 t. h(t )  lim. Where λ0 is the baseline function, t is time of each firm’s first adoption of ISO 14001, and Xi denotes the ith explanatory variable. In this model, the effects of independent variables are considered time–invariant during the observation window. ISO 14001 was first set as a standard by the ISO in 1996, and so the first firm certification for the ISO 14001 standard was on the same year. Thus, 1995 is the year we have adjusted as start of the time frame based on, designated as the initial time period (i.e., t = 0). It should be noted that financial data for Israeli firms is only available starting 1998 onward and therefore hypothesis 4 as well as one of the control variables was only analyzed for the years between 1998–2009. Dependent variable This research uses ISO 14001 as dependent variable. Information regarding ISO 14001 accreditation of Taiwanese firms was retrieved from the standardization institute authorized by the ISO to provide ISO 14001 certification – The Taiwanese Bureau of Standards’ – database. Due to the nature of hypotheses and requirements for archival data usually available only for publicly traded firms, the list of firms holding ISO 14001 was cross checked with the Taiwan Stock Exchange (TSE) listings, 30.

(31) in order to determine which firms have both ISO 14001 certification and are traded on the stock exchange. Out of 249 certificates given to facilities and firms Taiwan, 40 are traded on the TSE. These 40 firms were analyzed within their corresponding industry segment, according to the TSE database. After assigning each firm to its corresponding industry, all the other firms within that industry segment were added to our dataset in order to examine our hypotheses. Only firms from manufacturing industry sectors were included in this research, leaving out firms in the services industries. Services firms were excluded from the research for a twofold reason. The first reason lies in the fact these firms tend to have much smaller environmental concerns due to the fact lack of manufacturing processes means these firms hardly create any pollution or waste different than that produced by normal households, and therefore are less likely to break (at least at a large scale) any environmental regulations or laws. Services firms are also less likely to be viewed or addressed by the public and the media as responsible for environmental pollution. The second reason, related to the first one, is the fact services companies wishing to obtain ISO 14001 certification could do so more easily, compared with manufacturing firms, due to the fact no actual change in production methods would be required. Adding such firms to our sample could in our opinion create a distortion in the results, and therefore we chose to refrain from including them. Indeed, within service companies, cellular communications firms might be viewed responsible for electromagnetic radiation related problems, an issue which might be viewed as environmental one. According to ISO, however, electromagnetic radiation issues belong to a different family of standards, those concerned with public safety and similar fields, and thus control of electromagnetic radiation is not part of 31.

(32) the ISO 14001 certification (ISO, 2011). As a result we chose to exclude cellular communication providers from the research data. Another type of services which might have a heavier environmental effect are freight companies, however no such firms are traded separately on the TSE, and therefore could not be examined. Altogether this research sample includes 71 more firms from the same industries as ISO 14001 certified firms which do not hold ISO 14001 certification, thus bringing our company sample size to 111. The industries included in this research are: Electric house wares (4 firms), Illumination devices (1 firm), Electrical transmission and distribution (6 firms), Optical equipment manufacturers (6 firms), computer manufacturers (5 firms), packaging and assembly (2 firms), Electric circuit boards imprinters (10 firms), steel manufacturers (15 firms), cement manufacturers (7 firms), glass manufacturers (3 firms), plastic products (5 firms), tire manufacturers (5 firms), rubber manufacturers (1 firm), pharmaceutical firms (6 firms), chemical products (6 firms), cleaning materials (2 firms), compound rubber products (4 firms), resin plastic (8 firms), fertilizers (2 firms), paper products (5 firms) and dairies (4 firms). For obvious reasons, industries with less than 4 firms were excluded from imitation effect hypothesis regression analysis.. A similar process was done in order to retrieve the data about Israeli firms with ISO 14001 certification. A list of publicly traded firms holding ISO 14001 certification was first obtained from the Standards Institution of Israel (SII). However, due to the fact that in Israel other non–governmental firms are also allowed to issue ISO 14001 certification, and since some of these agencies did not agree to share their list of clients (i.e. certified companies) with us, an alternative method was used. After reviewing the SII certified firms list, the Tel Aviv Stock Exchange (TASE) website 32.

(33) database was used in order to ascribe each firm to its pertinent industry. A further research of all listed firms on the TASE was later executed, using each firm’s website, financial reports and through e–mail and phone correspondence with the firms, in order to obtain the complete list of all public certified ISO 14001 firms in Israel relevant to our research. The total number of listed publicly traded firms with ISO 14001 was 50, out of which, as mentioned earlier in relation to the Taiwanese firms in our dataset, only firms in industrial sectors with actual product manufacturing were selected.. A total number of 181 firms divided to eight different industries has been obtained for this research, out of which 40 firms (leaving out 10 firms in the services industries) have ISO 14001 certification. Those firms belong to the corresponding eight industries as follows: Chemical and pharmaceutics (5 firms out of 19 in total have ISO 14001 certification), rubber and plastic (5/18), electrical and electronics (7/32), High-tech and computers (6/28), food (6/27), metal and construction materials (5/31) textile and clothing (1/10), wood and paper (5/16). It should be noted that subsidiaries were referred to using parent companies’ name. Two different regression analyses were created for both countries. The main reason for this separation, instead of combining both countries in one large sample, is due to the fact stock exchange industry classification is different in Taiwan and Israel. While the Taiwanese stock exchange uses a SIC based method to define the industries to which each firm belongs to, the Tel Aviv stock exchange uses a different arbitrary method, generally organizing firms on the stock exchange according to the type of firm (Services, Hi–Tech, Industry, Food, etc.). Another reason lies in the different nature of the data sources, as explained more thoroughly in the next section. Israeli 33.

(34) green organizations differ from Taiwanese ones in their common activities and public recognition while datasets of media coverage were retrieved from significantly different types of databases. We believe these differences call for a separate analysis, in order to avoid disproportional balance for data from one of the countries at the other’s expense.. Independent Variables Environmental awareness: Green organizations’ activities were collected through websites of the five most well–known and established organizations acting and participating in environmental protection activities in Taiwan – The Taiwan Environmental Action Network , Taiwan Environmental Protection Union, The Society of Wilderness, Taiwan Housewife Union and Green Formosa Front2. Additional information was retrieved using the United Daily News internet news database (UDN) for each organization’s name on each year during the years 1995– 2009. Similarly, information about Israeli green organizations’ was obtained using websites of the following organizations: Adam, Teva ve Din, Society for the Protection of Nature in Israel, Green Course3and Greenpeace Israel. Search of articles regarding the above mentioned organizations on Ha'aretz newspaper database has also been made in order to retrieve additional information for the relevant years. The retrieved data was analyzed and separated into five different categories: Appeals to legislators and participation in public hearings, Advertisement on the Media and press conferences, Small scale public activities (e.g. tree planting, classes,. 2. Respectively: 台灣環境行動網, 台灣環保聯盟, 荒野保護協會, 主婦聯盟, 綠色陣線協會 Respectively: ‫ טבע ודין‬,‫אדם‬, ‫ החברה להגנת הטבע‬, ‫מגמה ירוקה‬ 34 3.

(35) and sales events), Demonstrations and public rallies and Court appeals and mass media campaigns (see appendix 3). These categories were organized in an ascending order according to the activity’s complexity, required resources and number of participants. This data was based on Adam, Teva ve Din’s expenses reports (A.T.D, 2009), as well as media articles estimating costs, participation and effects of environmental activities (for instance, organizing a mass rally, or initiating large media campaigns are a lot more costly than organizing an eco–movie screening in a coffee shop). Following, each type of activity was assigned a weight ranging from one to five, one being the lowest and five being the highest values. These weighted values were summed up together with the number of annual occurrences of each type of activity, thus obtaining a figure representing the annual sum of all green organizations activities’ scope values.. Media Coverage: Media coverage data from Taiwan was obtained through the United Daily News archives, established in 1951. The data was based on search results for articles which included all possible combinations between the terms “environmental protection”, “ecology”, “pollution”, “waste”, “greenhouse effect” and “carbon emissions”4, chosen as determinates for whether an article’s content is related to environmental issues. Only articles containing two (or more) of these terms were added to the count, in order to decrease or avoid inclusion of articles in which one of these terms is mentioned, but does not discuss environmental matters. The total number of articles retrieved was later summed up in order to identify annual trends in environmental issues media coverage (see appendix 4).. 4. Respectively 環保、生態、垃圾、汙染、溫室、排放 35.

(36) Data concerning media coverage of environmental issues in Israel was based on the “Ha’aretz” newspaper online database. “Ha’aretz” is the oldest daily newspaper to date in Israel, established 92 years ago, and still maintains its position as one of the three leading (non–free) newspapers. The data search was for articles tagged under “environmental and ecology”, which were later reviewed one by one in order to make sure their content indeed discusses environmental issues. Like the Taiwanese data, the total number of articles was then calculated, in order to identify trends of media coverage of environmental issues over the selected period. Both the abovementioned searches were for the years 1995–2009.. Internal resources: Data regarding firm size was measured by logarithms of total assets obtained from annual financial reports. The data is quoted in United States Dollars values, obtained by converting New Taiwanese Dollars figures for Taiwanese firms and New Israeli Shekels for Israeli firms according to the exchange rate with US Dollars on the last trade day of each year covered by this research. Similar analysis was made to each firms’ sales reports, but later omitted due to the similarity in results with the total assets inquiry. The data was retrieved from each firm’s financial reports as found on the respective stock exchange websites and the financial database websites bizportal.com in Israel and The Economic Journal database (TEJ) in Taiwan.. B2B or B2C firms: Each firm on the dataset was checked in order to determine if its customers are end users or other firms, using the purchased goods in order to manufacture a different product. In cases of uncertainty regarding a firm’s characteristics, its website or financial report’s description of firm’s business part was 36.

(37) checked in order to determine each firm’s customers’ nature. For this research, any firm who sells products carrying the firm logo is considered to be a B2C firm. The reason for this distinction lies in the assumption that any firm that has products which can be traced back to its facilities sold on the market is bound to be more exposed to public and Media review, and therefore more likely to suffer harsher consequences should it be found responsible of actions with negative effect on the environment, consequences which may vary from product boycotting to activities against the firm or even legal actions. As mentioned earlier, we assume B2C firms would be more likely to obtain ISO 14001 certification.. Imitation effect: The imitation effect hypothesis was analyzed by comparing number of firms holding ISO 14001 certification in each industry on each year starting 1996 in an attempt to determine possible industry specific trends of EMS certification. Based on their stock exchange industrial sector information, each industry was checked for the dates of ISO 14001 certification in order to determine if indeed an imitation effect, in which adoption of the certificate by several firms causes other to do so, can be identified. In this research the network effect was defined as a case in which 2 or more firms within an industry obtain ISO 14001 qualification the following year after an industry competitor has done so.. All the independent variables except for time–invariant variables (namely the B2B/B2C variable) are lagged for one year from ISO 14001 certification date, as this research measures their consequential effect on firms, as well as taking into consideration the length of time ISO 14001 certification requires. 37. By this method,.

(38) the number of media articles regarding environmental topics in 1998 would influence the number of firms opting for ISO 14001 certification in 1999 and so on.. Control Variables Firm age: Age was calculated by years since company founding. The data was retrieved using each firm’s website and financial data records. Our hypotheses regarding firm age is that mature companies will be more inclined to obtaining ISO 14001, due to the fact they already have a fixed firm structure and methods of operation, giving them better tools for large scale changes. Younger firms, which are yet to establish a steady and fixed framework might be less capable of creating such changes which are not compulsory, such as ISO 14001 certification, since they are yet to achieve the stability required for such processes.. Return on equity: Each firm’s public financial records were checked to obtain ROE rate. We use this data assuming firms with higher ROE are more likely to initiate costly processes like EMS certificates than lower or negative ROE firms. The reasoning for this assumption is that firms with higher ROE should have satisfied to a larger extent shareholders’ profit expectations and thus have more options and flexibility for spending money on long term processes with no immediate financial profit. Firms with lower ROE, on the other hand, might be facing pressure from stakeholders not to initiate such costly ventures, which might further reduce short term profitability and share value. ROE data was measured using the total assets and shareholder equity data in each of the companies included in this research on an annual basis. A third control variable, examining firm ownership, was obtained for Taiwanese 38.

(39) firms, with intentions of checking whether a firm whose stocks are held by private investors or institutional investors would have different characteristics in terms of EMS. Unfortunately, due to the complexity of obtaining similar data on Israeli firms, this variable was later omitted.. 39.

(40) RESULTS Taiwan Regression analysis was conducted in order to determine the relationship between ISO 14001 certification and the aforementioned assumptions. Table 1 shows descriptive statistics and correlations. Table 1: Taiwan dataset model results. Age. ROE. Model(1). Model (2). Model (3). Model (4). Model (5). Model (6). 0.023***. 0.038***. 0.038***. 0.042***. 0.034***. 0.017***. (0.005). (0.005). (0.005). (0.006). (0.006). (0.006). 0.274. 0.256. 0.264. 0.269. 1.216*. 1.048. (0.337). (0.401). (0.404). (0.397). (0.723). (0.748). –0.225***. –0.233***. –0.233***. –0.238***. –0.239***. (0.022). (0.023). (0.024). (0.024). (0.024). 0.000. 0.000. 0.000. 0.000. (0.000). (0.000). (0.000). (0.000). –0.232. –0.180. –0.271*. (0.154). (0.156). (0.158). 2.109***. 2.283***. (0.182). (0.190). H1a. H1b. H2. H3. H4. 0.423*** (0.045). pseudo R–sq. 0.006. 0.156. 0.156. 0.157. 0.185. 0.204. chi2. 24.192. 656.234. 657.172. 659.369. 777.823. 860.717. Standard errors in parentheses. ="* p<0.1. ** p<0.05 *** p<0.01". A negative relation was found checking green organizations’ activities in Taiwan with firms’ adoption of ISO 14001, refuting hypothesis 1a. A possible explanation for this result is the nature of green organizations’ activities in Taiwan, usually comprised of low scale events such as movie screening or classes. Such events seldom receive large media attention and consequently do not become a significant factor on firms’ 40.

(41) and public agenda. We do not believe green organizations activities could actually cause firms not to adopt ISO 14001, and therefore dismiss this hypothesis as irrelevant, both in Taiwan and in Israel. Stats regarding Taiwanese green organizations’ activities show that using the five point scale defined in this research, the annual average of total green organizations activities stands at 24 points per year – a low figure compared with the Israeli one (see appendix 5). Media coverage of environmental issues, checked by using related articles in the Media was found to have a significant relationship at the p<0.01 level with firms’ adoption of ISO 14001 the following year. This data supports hypothesis 1b, and media influence on firms’ environmental policies. The stats regarding Media coverage show us a high number of articles reporting environmental matters in Taiwan. On average, we see 5–10 articles every day which include the combinations of 2 or more of the keywords chosen. As mentioned earlier though, the UDN database (of early 2011) does not allow separate inquiries for different sections of the paper, and therefore we cannot tell if those articles appear on the local news, national news or other sections of the paper. Analysis of Taiwanese B2B and B2C firms’ data indicates a weak negative correlation at the p<0.1 level with likelihood of ISO 14001 certification. This data refers to the model which includes all other variables. When data related to hypotheses 3 and 4 is omitted, the results show no correlation between the stats. 75 percent of the firms included in this research are B2C firms, which have at least some of their products sold directly to end users, thus being more exposed to public pressure, according to our assumption. We therefore reject hypothesis 2 in for the Taiwan dataset. Hypothesis 3 predicted an imitation effect due to institutional pressure within 41.

(42) industries and existence of “peer pressure” leading to higher rates of ISO 14001 adoption. This hypothesis is supported at the p<0.01 level, expressing the influence of early adopters of ISO 14001 on other firms in the same industrial sector. About twenty percent of all firms included in this research held ISO 14001 certification for at least part of the research time. The hypothesis regarding firm size (Hypothesis 4) is significant at the p<0.01 level and indicates large firms with more abundant financial resources could indeed more likely to seek and obtain ISO 14001, while smaller firms usually have lower rates of ISO 14001 adoption. Table 2: Descriptive statistics and Correlations – Taiwan ISO ISO. Green or.. Media. B2B B2C. Peer pr.. Size. age. ROE. 1.000. Green orgnz.. 0.135* 1.000. Media cov.. 0.015. B2B/B2C. 0.066* 0.003. –0.000. 1.000. Peer pressur. 0.529* 0.275*. 0.051*. 0.100*. 1.000. Size. 0.372* 0.169*. 0.019. 0.195*. 0.218*. 1.000. age. 0.304* 0.264*. 0.004. 0.431*. 0.286*. 0.450*. 1.000. ROE. –0.011 –0.027. –0.052* –0.071*. –0.050. 0.022. –0.036 1.000. –0.149*. 1.000. * p<0.05. Israel Regression analysis of the Israeli firms’ data was conducted next, with results quite similar to the Taiwanese firms, but for a few points of difference. In similarity with Taiwan, a low negative correlation between green organizations’ activities and public firms’ likelihood of ISO 14001 adoption was found, rejecting the basic assumption in hypothesis 1a. Israeli green organizations’ activities are on a much 42.

(43) larger scale than Taiwanese ones (see appendix 5), and the average annual activities score, according to the scale used in this research, is over 148, a figure over six times higher than the one measured in Taiwan. Regression results, however, seem similar. In our opinion, the reason for this might lie in the fact green organizations’ activities are more easily affected on short term basis due to factors such as economic, political or security issues uncertainties. For instance, decline in green organizations’ activities in 2001 in Israel could be attributed to the armed conflict with the Palestinians, which peaked during that year. The fact most, if not all green organizations’ activities are organized by a handful of individuals, leading the way for other members, might mean that if one of those individuals is preoccupied with other issues (for instance, call for military service as part of the reserve forces), the entire organization’s activities might be affected and change drastically. On the other hand, public firms have a more complex hierarchy, in which individuals’ absence usually has a lesser effect on the firm’s performance, which makes their management and work processes more stable, meaning longer processes such as ISO 14001 certification would be less affected. Table 3: Israel dataset (1, including Green organizations’ activities) model results. age. ROE. H1a. H2. H3. 43. Model(1). Model (2). Model (3). Model (4). Model (5). 0.002***. 0.002***. 0.002**. 0.002**. 0.002. (0.001). (0.001). (0.001). (0.001). (0.001). –0.006. –0.005. 0.000. –0.002. –0.005. (0.033). (0.032). (0.029). (0.030). (0.045). –0.008***. –0.008***. –0.008***. –0.008***. (0.003). (0.003). (0.003). (0.003). 0.720***. 0.721***. 0.482**. (0.228). (0.228). (0.231). –1.441. –2.379**. (0.951). (0.936).

(44) H4. 0.395*** (0.042). pseudo R–sq. 0.002. 0.006. 0.011. 0.012. 0.053. chi2. 3.744. 12.012. 23.921. 26.147. 115.327. Standard errors in parentheses. ="* p<0.1. ** p<0.05 *** p<0.01". Table 4: Israel dataset (2, including Media coverage) model results. age. ROE. Model(1). Model (2). Model (3). Model (4). Model (5). 0.002***. 0.002***. 0.002**. 0.002**. 0.002. (0.001). (0.001). (0.001). (0.001). (0.001). –0.006. –0.005. –0.001. –0.002. –0.005. (0.033). (0.031). (0.028). (0.029). (0.043). –0.003*. –0.003*. –0.003*. –0.003**. (0.001). (0.001). (0.001). (0.001). 0.717***. 0.718***. 0.480**. (0.228). (0.228). (0.231). –1.518. –2.445***. (0.944). (0.928). H1b. H2. H3. H4. 0.393*** (0.042). pseudo R–sq. 0.002. 0.003. 0.009. 0.010. 0.051. chi2. 3.744. 7.582. 19.377. 21.882. 109.999. Standard errors in parentheses. ="* p<0.1. ** p<0.05 *** p<0.01". Not in accordance with hypothesis 1b, differing from Taiwan on this matter, no significant correlation was found between the number of environment related issues in Israeli media and the likelihood of ISO 14001 adoption. A similar explanation could be used here too, especially after examining the Ha’aretz database records, and discovering large variance in the annual amount of environmentally related articles published (see appendix 4), variance of up to 40 percent difference between two 44.

(45) successive years. Factors like editorial preferences and perhaps advertisers’ pressures may have been influential as well, alongside security issues which usually take the front pages when they occur, in creating these large fluctuations. The fact only the Ha’aretz database currently offers online records dating back to 1995 may have created a problem resulting from lack of information, a problem which might have been diminshed were other newspapers’ databases available as well. Upon seeing the results, we suspected another reason lies in the strong correlation between green organizations’ activities and media coverage of environmental issues. In a dataset like the one examined in Israel, with a low number of environmental news (less than one per day on average) articles discussing green organizations’ activities naturally come in complete correlation to the activity describes, if they sum up to a significant number of articles within a certain year, than we could expect a strong correlation overall. Therefore we separated the data for green organizations’ activities from the Media data. Results, however, were unchanged, and the hypothesis rejected.. Hypothesis 2 predicted B2C firms to have higher ISO 14001 adoption rate than B2B firms. This Hypothesis is supported by the data with positive significance at p<0.05 and p<0.01 levels (the former occurs only when firm size data is added to the regression analysis). About 80 percent of the firms in the dataset are B2C firms, selling their products to end users and/or placing their logo or brand name on the final product, rather than sell parts of a product to other firms. As assumed in Hypothesis 2, such firms could have a stronger tendency to apply and obtain ISO 14001 certification. The effects of ISO 14001 adoption by firms within the same industry or business 45.