Operational efficiency integrating the evaluation of environmental investment: The case of Japan

Purpose: The purpose of this study is to explore whether a connection exists between business operational efficiency and environmental responsibility. Design/methodology/approach: This research adopts the DEA method through a four-step analysis to examine inter-industry differences in terms of operational efficiency with environmental consideration. The sample comprises 32 Japanese firms from three different industries listed in the Tokyo Stock Exchange between 2001 and 2006. Findings: The results indicate a positive correlation with statistical significance in terms of a firm's environmental conservation cost, net income and economic benefit of environmental conservation for the three Japanese industries. In addition, the relationship among a firm's environmental conservation cost, CO₂ emission reduction and total CO₂ emission are positively correlated but without significance. In particular, business operational efficiency integrating social responsibility for anti-global warming initiatives ( = total CO₂ emission level) could be applied to distinguish differences in terms of operational efficiency among industries. Research limitations/implications: Japanese firms adopt a voluntary environmental disclosure; therefore this study is constrained by the availability of long-term data. Social implications: This study enables environmentally conscious investors and fund managers to distinguish the operationally efficient industries when taking environmental performance into account. Originality/value: The study is a novel attempt to analyze inter-industry differences in terms of operational efficiency when considering environmental conservation through the DEA method using a four-step analysis.