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The impacts of firms on the natural environment and local communities have lately gained great momentum in academic and public debate (Vatalis et al., 2011). The severity and magnitude of present environmental harms (e.g. climate change effects and extreme weather events) have led all responsible actors from economic and social systems (e.g. consumers, firms, local authorities and local communities) to undertake their responsibilities (Kassinis and Vafeas, 2006; Wolf, 2014; Wang and Sarkis, 2017, Vatalis, 2010). In this context, there are pressures which have either formal forms such as regulations (e.g. environmental taxes, legislations and tradable permits) or informal forms such as reactions of local communities and consumers associations (e.g. products boycotters). In the field of corporate environmental management, there are two basic explanations for firms’ attitudes towards the adoption of environmental practices. Specifically, the first explanation is based on the proactive behavior of firms which voluntarily adopt environmental strategies to exploit various potential (financial and non-financial) benefits such as improvement in their reputation, a sustainable competitive advantage, the “social license to operate” (mainly for mining industries) and an increase in their profits (Fombrun, 2005; Hiller, 2013). The second explanation is that firms merely adopt environmental management practices as a result of changes in the environmental legislations without investments in new innovations and thus firms fail in gaining other benefits from the adoption of such practices (Chang, 2015; Gürlek and Tuna, 2018).
In this academic landscape, an intermediate trend seems to emerge which places greater emphasis on how environmental legislation could help firms to make new innovations and reap benefits. Specifically, it highlights that under certain conditions environmental regulations could be a good tool to transform a firm from a traditional producer into an environmentally friendly producer which implements operational strategy which leads to innovations and economic benefits (Kagan et al., 2003; Bigliardi et al., 2012; Li and Ramanathan, 2018). Indeed, Porter and van der Linde (1995), supporters of this approach, have stressed that well-designed environmental regulations could play a critical role in delivering win-win solutions for firms (environmental and financial gains). A number of studies have been conducted to shed light on the relationships between environmental regulations and corporate financial and environmental performances (Kagan et al., 2003; Al-Tuwaijri et al., 2004; Schaltegger and Synnestvedt, 2002).
Many of these studies try to build theoretical foundations to explicate and support the assertions of Porter and Van der Linde’s hypothesis (known as the Porter hypothesis). In essence, these studies develop normative models to detect potential positive or negative relationships between environmental regulations and corporate environmental and economic performance (Breuer and Lüdeke-Freund, 2014). These models are theoretical representations of various hypothetical propositions and potential relationships under certain circumstances without providing empirical evidence. In this logic, Ambec et al. (2013) have provided a hypothetical illustration from ‘strict but flexible regulations’ to enhance corporate innovative outcomes which result in improving both corporate environmental and financial performance. Furthermore, the relative literature classifies the Porter hypothesis as ‘weak’ and ‘strong’. The former implies that there are only relationships between environmental regulations and corporate innovation, while the latter focuses on the potential links between environmental regulations and corporate environmental and economic performances (Lanoie et al., 2011; Rubashkina et al., 2015; Fabrizi et al., 2018).
Another part of studies is based on various academic fields such as mainstream economics (Crifo and Forget, 2015), management theory (Murty and Kumar, 2003), environmental economic (Ambec and Barla, 2006) and the corporate environmental management (Sánchez-Medina et al., 2015) in order to test the Porter hypothesis empirically. These studies use data from questionnaire-based surveys or real data of firms, such as R&D expenses in environmental practices and environmental patents. However, these studies have some weaknesses due to the fact that they are based on macro-level data (country’s level) and also data from questionnaires (i.e. answers from managers or other stakeholders) is not free from bias.