Impact of environmental policy on firm's market performance: The case of ISO 14001

Environmental Management System, that is, ISO 14001, helps to build corporate reputation, legitimacy, and can also be considered as firms' strategic response to institutional pressure to reduce the impact of business activity on natural environment. It arises the question: does ISO 14001 pay off financially? Unfortunately, this question remains broadly unanswered. Current studies on this issue show mixed and inconclusive findings. By employing rigorous event study approach, this paper compares ISO 14001 certified firms with their noncertified counterpart based on different matching criteria that include size, return on asset, and industry. The results indicate that the ISO 14001 is negatively evaluated by the investors in both the short and long run. This paper also suggests implications for policy makers, managers, and other nonprofit organizations.