Panel VAR Study on the Effects of Technical Efficiency, Market Competition, and Firm Value on Environmental Performance

This study provides evidence on the interactions among four interconnected firm performance profiles: environmental performance (environmental score and pollutant emissions), production technical efficiency, firm market power, and firm market value. We employ two sophisticated econometric methodologies to a sample of almost 2500 observations covering about 430 US-listed manufacturing firms from 2002 to 2020. First, stochastic frontier analysis allows us to estimate time-varying technical efficiency in firm production; next, we apply an atheoretical model, the panel vector autoregression model, to identify the dynamic and causal relationships between the corporate profiles’ performance. Our results show that inefficiency is the weak point of the environmental score for the listed US manufacturing firms. Moreover, monopolistic rents enact a detrimental externality on firms’ ecological awareness. Finally, market dominance appears be a Pareto inefficiency condition