Business Strategy and the Environment

Bus. Strat. Env. 23, 117–130 (2014)

Published online 1 July 2013 in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/bse.1776

Uncovering the Value of Green Advertising for

Environmental Management Practices
Christina W.Y. Wong,1* Kee-Hung Lai,2 Kuo-Chung Shang3 and Chin-Shan Lu4
1
Institute of Textiles and Clothing, The Hong Kong Polytechnic University, Hong Kong, China
2
Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Hong Kong, China
3
Department of Transportation Science, National Taiwan Ocean University, Keelung City, Taiwan
4
Department of Transportation and Communication Management Science, National Cheng Kung
University, Tainan City, Taiwan

ABSTRACT
This paper extends previous environmental management research by building and empirically
testing a model of the contingency effects of green advertising on the relationships between en-
vironmental management practices in terms of environmentally conscious manufacturing and
product stewardship, environmental reputation and financial performance. We examine the value
of green advertising in sharing and publicizing information about organizational achievements in
environmental preservation in a business-to business context with the Taiwanese electronics
manufacturing industry. The theoretical propositions are largely confirmed by structural path
analyses of survey responses collected from 122 Taiwanese electronics manufacturers. Green ad-
vertising delivers financial benefits only for those manufacturers that do not have an established
environmental reputation. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment

Received 02 August 2012; revised 04 December 2012; accepted 11 December 2012

Keywords: environmental management; electronics manufacturers; green advertising; sustainable development; environmental
policy; stakeholder

Introduction

T
HE SUCCESS OF MANUFACTURERS TODAY DEPENDS NOT ONLY ON OPERATIONAL EFFICIENCY BUT ALSO THEIR ABILITY TO
sustain business growth (Economy, 2004; Economy and Lieberthal, 2007; Liu & Diamond, 2005). The
implementation of environmental management practices pertinent to environmentally conscious
manufacturing and the development of eco-products are popular approaches for manufacturers to
reduce the environmental damage from production processes and subsequent consumption by customers
(Atasu et al., 2008). Their products can also gain profitable access to different markets, with environmental
consequences lessened through reduction in the use of hazardous chemicals and conservation of natural
resources (Geyer et al., 2007) and support from environmentally conscious customers (Bansal and Clelland,
2004). In addition to these benefits, Surroca, Tribo, and Waddock (2010) argued that environmentally

*Correspondence to: Christina Wong, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, China. E-mail: christina.wy.wong@
polyu.edu.hk

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118 C. W. Y. Wong et al.

responsible enterprises have the advantage of a socially desirable environmental reputation, and the value of
such an intangible organizational asset has been well-documented. To advance this line of research, we investigate
the role of green advertising for manufacturers to publicize their corporate environmental actions, including cleaner
production processes, materials recycling and eco-product design, and determine if there are financial rewards due
to an enhanced environmental reputation (Melo and Garrido-Morgado, 2012).
Green advertising is considered as the marketing activities of firms intended to promote the environmental
attributes of business operations and processes (Kilbourne, 1995), increasing the exposure of enterprises with
regard to their environmental efforts, commitment and development, and catering for the needs of the environmen-
tally conscious customer. These activities include press releases, sponsorship of environmental interest groups and
publication of corporate documents. Enterprises can take advantage of green advertising to inform, incite and
remind customers about their environmental stance (Narayanan and Manchanda, 2009). In doing so, customers
can better understand organizational posture and practices in preserving the environment. Environmental reputation
is considered as an intangible asset which can signal organizational conformity to social norms on environmental
preservation (Toms, 2002). This organizational reputation builds confidence in the market concerning the
environmental performance and posture of an enterprise relative to its rivals. With the differentiation, enterprises
can better attract investors and customers, charge premium prices and gain access to venture capital (Fombrun,
1996a; Kang and Hur, 2012).
Nevertheless, there are criticisms of the effectiveness of green advertising in building an environmental
reputation (Bansal and Clelland, 2004; Shrum et al., 1995; Zinkhan and Carlson, 1995) and delivering finan-
cial returns (Carlson et al., 1996). For example, Mathur and Mathur (2000) reported that a news release about
development of environmentally friendly products and appointment of environmental policy managers can be
devastating for the market value of an enterprise if these organizational actions are perceived as self-
presentation by the public. Similarly, Shrum et al. (1995) revealed that many customers are sceptical of
promotional messages emphasizing the environmental image of enterprises. In publicizing their environmental
actions, enterprises are hesitant about the potential risk of triggering an unwanted attack and attention from
environmental interest groups or competitors questioning the effectiveness of organizational initiatives, or the
intention behind their environmental actions (Desai and Gupta, 1996; Laufer, 2003). However, Bansal and
Clelland (2004) advocated organizational legitimacy to release information on environmental commitment to
satisfy customers’ expectations. These studies imply that a firm’s promotional efforts on publicizing its environ-
mental commitment can be attributed to altruistic motives of the firm (Peattie and Peattie, 2009). If these efforts
are considered as being an attempt to manage impressions about the firm or forceful advertisement, and if not
properly handled, the organizational claims about environmental protection can be questioned. Given the
divergent views on the contributions of green advertising to enterprises, we explore the intangible and financial
value of publicizing organizational efforts in environmental management with several questions. How do
manufacturers gain an environmental reputation, particularly when information related to their environmental
management practices is often not easily accessible without undertaking advertising initiatives to inform their
business customers in a supply chain? How do these advertising initiatives influence manufacturers’
environmental reputations as well as their bottom-line performance? How does environmental reputation
contribute to the financial performance of environmental management practices? Is continuous green advertising
worthwhile if manufacturers have an established environmental reputation? This study makes two major
contributions. First, we empirically test the relationships of environmental management practices with environ-
mental reputation and financial performance in a business-to-business (B2B) context. The results will shed light
on the bottom-line returns of environmental actions by manufacturers in serving their business customers.
Second, we examine: (i) whether green advertising fosters a positive environmental reputation, particularly for
those environmentally responsible in their manufacturing processes and product development, and (ii) whether
green advertising is helpful for manufacturers in establishing an environmental reputation and hence reaping
financial gains. Due to the variance of market response to green advertising (e.g. Mathur and Mathur, 2000),
the promotional efforts of organizations can be considered a symbolic action, endangering the substantive value
of green advertising. Achieving these objectives will provide answers about the role of green advertising in
enhancing corporate reputation and the bottom-line performance of manufacturers by their environmental
management practices.

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 23, 117–130 (2014)
DOI: 10.1002/bse
Green Advertising and Environmental Management 119

Theoretical Background and Hypotheses

Green Advertising
Green advertising is a marketing tool to inform and disseminate information related to the environmental efforts
and commitment of an enterprise (Keller, 2001). There have been studies reporting organizational disclosure of
information relating to environmental issues involving details such as energy usage, environmental expenditure,
carbon emission and so forth (Al-Tuwaijri et al., 2004; Gray et al., 2001; Wong, 2012). The disclosed information
is not restricted to annual reporting; it includes the use of different methods of communication such as sponsoring
environmental interest groups, promoting environmental information about products and providing environmental
information on corporate websites to publicize the environmental actions of enterprises. Green advertising empha-
sizes concerted marketing efforts across various marketing functions, such as promotion and product development,
communicating messages (e.g. product characteristics and their environmental impact) with the aim of reducing
the uncertainty of customers when deciding to make a particular purchase (Smith et al., 2006). The importance
of advertising environmental information to attract individual customers has been recognized. In the B2B context,
different advertising approaches (e.g. regularly updating and sharing environmental information via the company
website) are preferred rather than using TV commercials and print advertisements. This research aims to
examine if green advertising is beneficial in assisting manufacturers to inform their business customers about their
environmental management efforts, extending the extant literature that emphasizes green advertising in the
business-to-customer (B2C) context.

Environmental Management Practices

In the literature, environmental management practices have been defined differently with research focus on such
environmental initiatives as eco-design of products (Lai and Wong, 2012; van Hemel and Cramer, 2002), recycling
and waste reduction (Guide et al., 2003; Lai et al., 2012; Sroufe, 2003), adoption of environmental technologies
(Klassen and Whybark, 1999; Shrivastava, 1995), green logistics and transportation (Hilmola, 2011; Lai et al.,
2011; Li et al., 2012) and green sourcing and procurement (Carter and Carter, 1998; Chen, 2005). As suggested
by Gilley et al., (2000), manufacturers’ environmental management practices can be categorized into two fundamental
operational practices, namely environmentally conscious manufacturing and product development. These practices
have unique implications for corporate reputation and economic gains.
Contributing to the value chain in product development, manufacturing activity is considered to be a major
source of pollution and resource consumption, particularly in the electronics industry. Electronics manufacturers
generate hazardous chemicals and end-of-life electronic waste. They also release various toxic substances (e.g. lead
and mercury) in the production processes causing damage to the health of local residents (Economy and Lieberthal,
2007). In response, international environmental legislations such as the Restriction of Hazardous Substances
Directive (RoHS) limiting the use of hazardous materials have been enacted to restrain the resultant pollution.
Environmentally conscious manufacturing has been evolving rapidly as a pre-requisite for electronics manufacturers
if they seek access to international markets. Environmental practices are considered as process-oriented ones that
use recycled or environmentally friendly materials, reduce waste and adopt environmentally oriented technologies to
improve the production process (Gilley et al., 2000). These practices are useful for reducing pollution, eliminating
the use of toxic materials, adopting cleaner and energy efficient equipment, minimizing waste and lessening carbon
emission in manufacturing processes (Rothenberg et al., 2001). These goals can be achieved by investing in a redesign
of production processes and imposing control on manufacturing processes.
Beyond internal operations, product stewardship emphasizes organizational efforts to mitigate the environmental
damage caused by products throughout their life-cycle. The control of environmental damage should extend
beyond production processes and involve customer participation (Sharma et al., 2010). There are increasing
governmental concerns about the harm caused by electronics use and disposal on the domestic environment
(e.g. the Waste Electrical and Electronic Equipment (WEEE) regulations requiring electronics manufacturers to collect
and recycle electronics waste). As from 1 December 2011, importers in the European Union and European Economic

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120 C. W. Y. Wong et al.

Area have been required to submit information to the European Chemicals Agency relating to the physical–chemical
properties and toxicological and ecological data for their imported items. For compliance, electronics manufacturers
need to be mindful of the use of toxic materials and the design of products for reuse and recycling. Product stewardship
that incorporates reusable components and the deployment of modular processes is a feasible way to employ new
environmentally friendly product designs or redesigns. For example, ASUSTek Computer Inc., a reputable manufac-
turer of computers, communication and consumer electronics in Taiwan, is committed to environmental protection
by the ‘PC recycling for a Brighter Future’ project. This environmental initiative of ASUSTek provides a recycling
service to consumers and business users. The objective is to collect end-of-life computers and refurbish them for
donation, or provide proper treatment for the non-recyclable ones. In addition, ASUSTek’s products are designed to
be eco-friendly for easy disassembly and recycling. The products are also energy efficient, using about 35% less energy
relative to its competitors’ products. Product stewardship is recognized as an important contributor to environmental
sustainability as it reflects long-term commitment of manufacturers embracing an integrated view of the value chain
(De Ron, 1998). Such environmentally conscious design of products allows manufacturers to gain performance
benefits through waste minimization and increased energy efficiency (Kleindorfer et al., 2005) (Wong et al., 2013).

Environmental Reputation
While corporate reputation involves customer perception of organizational attributes relative to those of
competing companies (Rindova et al., 2005; Roberts and Dowling, 2002), manufacturers need to develop an
environmental reputation with the public concerning their environmental commitment and future prospects
for the related efforts to continue. In developing this reputation, manufacturers need to demonstrate their
achievements in environmental protection when environmental management practices are valuable for getting
customers to purchase goods that have been manufactured in an environmentally friendly way (Bansal and
Clelland, 2004). The environmental reputation of manufacturers can be a valuable asset for them to gain legiti-
macy and customer support by communicating their environmental achievements. In addition to environmental
management practices, responsiveness in sharing relevant environmental information (e.g. news about new
environmental initiatives and environmental issues) can influence customers’ judgments and their opinions
about a manufacturer.

The Moderating Role of Green Advertising

To showcase environmental efforts, green advertising approaches such as issuing environmental reports (Kolk, 2000),
developing public relations by sponsoring environmental interest groups (Sharma et al. 1999) and launching market-
ing campaigns with a focus on the eco-friendliness of products (Carlson et al., 1996) can be useful for manufacturers to
gain legitimacy and environmental reputation (Hughes et al., 2001). Such organizational marketing effort is congruent
with the communication theory emphasizing organizational communication as means to share information and dem-
onstrate organizational commitment to reducing environmental harms (Duncan and Moriarty, 1998). According to the
communication theory, customers will interpret the information with respect to its meanings, make judgments and at-
tributions about the intention of the message and consequently determine their actions toward the firms (e.g. change
perception or make a purchase) (Euske and Roberts, 1987). Green advertising can therefore be useful in influencing
and shaping stakeholders’ perceptions (Elsbach and Sutton, 1992). Manufacturers can benefit from this approach by
revealing their environmentally friendly merits, differentiating their environmental stance from the competition
(Shrivastava, 1995) and establishing a favourable environmentally-friendly image.

Hypothesis 1. The positive association between environmental management practices and environmental reputation of
manufacturers is strengthened when green advertising is present.

Building an environmental reputation is strategically important due to its potential for value creation as well as its
intangible characteristics that are difficult for competitors to imitate (Barney, 1991). Such a reputation is valuable for
manufacturers by developing customers’ confidence in the environmental nature of their products and building
customer loyalty in the long run (Fombrun, 1996b). Furthermore, the resultant environmental reputation lessens

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Green Advertising and Environmental Management 121

the information asymmetry encountered by customers and their uncertainty in making decisions (e.g. partnership
and purchase) related to a manufacturer. Continuous customer participation and support in corporate activities
are basic for generating profits (Brammer and Pavelin, 2006). Customers who are concerned about the hazards
of products made with toxic chemicals or polluting processes also prefer environmentally reputable manufacturers
(Roberts and Dowling, 2002). Moreover, there are better opportunities for manufacturers to collaborate with partners that
emphasize environmental protection and gain better terms of exchange (Ginsberg and Bloom, 2004; Prakash, 2002).
Although green advertising helps manufacturers improve their environmental stance, a high level of publicity about
environmental performance can be interpreted as an attempt by the organization to manipulate customers’
impressions and be viewed as hypocritical. This situation can be counterproductive (Wagner et al., 2009), as manufac-
turers with a good reputation for environmental protection are expected to reduce their environmental damage.
Excessive promotional efforts to highlight the environmental benefits of products and manufacturing processes raise
customers’ doubts about companies’ intentions and trigger consumers’ scepticism about the environmental claims
made by manufacturers (Chan, 2000). This can make green advertising appear as a symbolic organizational action that
makes no contribution to financial rewards.

Hypothesis 2. The positive association between environmental reputation and financial performance of manufacturers
is weakened when green advertising is present.

The Mediating Role of Environmental Reputation

There is a mediating role of environmental reputation on the relationship between environmental management
practices and financial performance. Manufacturers practising environmental management signal to the market that
they are being environmentally conscious in mitigating their environmental harms. Such organizational acts portray
an environmentally friendly image to customers who care about manufacturing-related pollution (Bansal and Clelland,
2004), and hence build a favourable reputation for environmental protection. A good environmental reputation can
reinforce the environmental responsibility of manufacturers in accordance with customers’ expectations, bolstering
their continuous efforts to reduce environmental harms, and cultivating customers’ continuous support and patronage.
In addition, there is accumulating evidence for better financial performance of enterprises with an established environ-
mental reputation. This reputation is a valuable asset for attracting investors, negotiating better terms with financing
institutions and building customer satisfaction and loyalty (Fombrun and Shanley, 1990; Milgrom and Roberts,
1986). Hence, a higher level of implementation of environmental management practices can lead to better financial
performance through better environmental reputation.

Hypothesis 3. Environmental reputation mediates the relationship between environmental management practices and
financial performance.

Research Design
Sample and Data collection
Taiwanese electronics manufacturers are key international suppliers of a wide spectrum of electronics parts and
components and pioneers in research and development for information technology production (The Economist
Intelligent Unit, 2008). In addition to compliance with the stringent international environmental regulations on
electronics products, Taiwan has initiated various industrial environmental improvement programmes, e.g. Industrial
Waste Minimisation and Green Design Network programmes, since the 1980s, with the aim of encouraging
environmentally conscious manufacturing. The Taiwan electronics manufacturing industry has demonstrated efforts
at environmental protection through greening of their manufacturing processes, with reduced consumption of
resources and improved product design to facilitate end-of-life product management (Shang et al., 2010; Wong et al.,
2012; Yang, 2012).

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122 C. W. Y. Wong et al.

We collected data from 122 electronics manufacturers listed in the Taiwan Stock Exchange Corporation (TWSE)
market and the Gre Tai Securities Market (GTSM) in Taiwan, which are financial institutions operating as a stock
exchange, and respectively serve the over-the-counter market and bond trading in Taiwan. These electronics
manufacturers produce different technological products ranging from semiconductors, optoelectronics, computer
and peripheral equipments, to electronics components. Survey packages including a questionnaire, a covering letter
explaining the purpose of this study and the use of collected data, and a postage pre-paid envelope were mailed to
executives of these manufacturers for response. Among the sampled respondents, 42% were vice-presidents or
presidents, 56% were managers or supervisors of departments responsible for environmental and safety issues
and 2% were in other positions. The annual revenue of 27% of the responding manufacturers is less than 1.1 billion
New Taiwan dollars (NT$), while 36% of respondent manufacturers have annual revenue of NT$1.1 billion to
NT$4.0 billion, and 37% have an annual revenue over NT$4.0 billion, indicating a reasonable coverage of
manufacturers with different scales of operation.

Measurement Development
Green Advertising
Previous studies have considered various mechanisms of green advertising, such as disclosure of environmental
liabilities in financial statements (Bansal and Clelland, 2004; Chamorro et al., 2009; Kennedy et al., 1998),
corporate environmental reporting (Montabon et al., 2007; Reid and Toffel, 2009), announcement of the
environmental movements of firms (Mathur and Mathur, 2000; Nair and Menon, 2008), advertising and
promotion with emphasis on environmental impact (Ginsberg and Bloom, 2004), affinity marketing affilia-
tions with social initiatives (Bloom et al., 2006) and so forth. While these approaches can be helpful for
fostering understanding about organizational commitment to preventing adverse environmental consequences, this
study is not intended to examine the usefulness of each of these mechanisms. Rather, we view green advertising as
a publicity tool to inform and deliver messages regarding organizational commitment to environmental protection.
As this concept is novel, we extracted four items related to organizational advertising practices from Gonzalez-Benito
and Gonzalez-Benito (2005) to measure the proactive organizational practices adopted to inform the public of
environmental protection efforts. These practices include sponsorship or collaboration with environmental interest
groups for relevant events, provision of information about environmental management practices, emphasis of the
environmental impact of products and elaboration of environmental issues that may be of interest to stakeholders
(Wong et al., 2011).

Environmental Reputation
We consider environmental reputation as an important organizational objective for manufacturers to pursue, with
environmentally conscious manufacturing being a valuable intangible asset to sustain their growth. Although
Tobin’s q has been used as a market-based measure for evaluating the intangible value of firms, this accounting
measure has been criticized for failing to evaluate intangible assets (e.g. Hillman and Keim, 2001). Considering that
environmental reputation is concerned with the perception of an enterprise’s environmental protection efforts that
may not be fully reflected in their accounting records, we develop a perceptual measurement scale to capture its
attributes. Since there are no measurement scales for evaluating environmental reputation, we developed one based
on the organizational reputation literature with interview inputs from 30 managers in electronics manufacturing. As
it was difficult to conduct focus group discussions with a group of executives due to problems with scheduling a
mutually convenient meeting time and ensuring confidentiality of their organizational information, we conducted
in-depth interviews by following an outline of relevant topics, e.g. corporate environmental objectives, environmental
management practices, environmental issues in their supply and distribution channels. We began interviews by asking
general questions such as ‘What are the environmental objectives of your company? What is the stance of your com-
pany in environmental protection? How does that affect your operations?’. We carried out the interviews by getting
the respondents to elaborate and explain, while ensuring all the topics were covered. During the interviews, most of
the managers expressed concerns about the rising expectations of customers concerning environmentally responsible
production methods and related issues such as handling of by-products, wastewater treatment and elimination of the

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Green Advertising and Environmental Management 123

use of toxic chemicals. They consider that it is necessary and strategically important to develop an environmentally
responsible reputation in support of their organizational growth. The measurement scale reflects the attributes of
corporate image, impression and satisfaction of stakeholders.

Environmentally Conscious Manufacturing

We adopted four items from Gonzalez-Benito and Gonzalez-Benito (2005) to measure the various ways of reducing
the consumption of hazardous materials and natural resources as well as eliminating waste in manufacturing
processes. Based on our interviews with the managers, we added two items to measure the controls imposed in
reducing emission and noise pollution in manufacturing processes in Taiwan.

Product Stewardship
Product stewardship is concerned with the reduction of environmental impact during a product’s production, use
and disposal. Specifically, the product is made of non-hazardous materials, is packed in minimal or reusable
packaging and consumes less energy. The product is also easy to disassemble to facilitate reuse and recycling of
parts and components with the aim to reducing environmental impact upon disposal (Lamming and Hampson,
1996; Reinhardt, 1998). We adopted a four-item scale from Gonzalez-Benito and Gonzalez-Benito (2005) and
Zhu et al. (2004) to measures these characteristics of environmentally conscious product design.

Financial Performance
Financial performance is the outcome measure of interest in this study. Following previous research on the impact
of environmental practices on the bottom line (Russo and Fouts, 1997), which was concerned with effective use of
organizational resources, we employed objective measures of financial performance, including return on assets
(ROA), return on investment (ROI), profit margin, and earnings per share (EPS). ROA is considered as an
operational measure of how effective the management is in deploying assets to generate earnings. It measures
how well electronics manufacturers utilize their assets through such green practices as savings from waste
reduction and resource consumption. Similar to ROA, with a focus on internal resource utilization and reflecting the pro-
ductivity of capital employed, ROI is an indicator of how much profit electronics manufacturers generate with the invest-
ment made by shareholders. It measures the rewards of ownership, and accounts for alternative financial structures and
value creation for shareholders through the environmentally responsible practices of electronics manufacturers. On the
other hand, the profit margin measures how well the electronic manufacturers control their costs while increasing sales
as a result of their environmental performance and reputation. A high profit margin suggests that manufacturers are able
to fulfil their economic and environmental purpose, which is to create and distribute value to gain legitimacy, ensuring
that their stakeholders will continue to support them (Clarkson, 1995). Lastly, EPS is another indicator of manufac-
turers’ profitability, reflecting the efficiency of manufacturers in utilizing their capital to generate income with an
emphasis on environmental protection in their practices. The measurement scales are summarized in Appendix A.

Control Variables
We consider several control variables that can affect the variances of the proposed relationships. Electronics manu-
facturers with a long history of operations can have a good reputation for the quality of their products and services. It
is reasonable that they can outperform those with a shorter operations history. We include the number of years they
have been in business as a control variable on performance outcomes. In addition, we control for the effects of
unobserved variability of resources in the analysis using firm size with the number of employees as the measure.

Analyses and Results

Confirmatory Factor Analyses and Bias Issues
We ensured content validity of the measurement items by circulating a draft survey questionnaire to three
academics in the fields of operations management as well as environmental management for content validation.
We refined the questionnaire based on their feedback. Subsequently, we pre-tested the survey questionnaire with

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124 C. W. Y. Wong et al.

a group of practitioners to ensure clarity and suitability of the questions. After the pre-test, we rephrased a number
of questionnaire items based on their feedback. Finally, we conducted a pilot test with a sample of 30 randomly
selected electronics manufacturers in Taiwan to perform statistical tests to establish face validity of the theoretical
constructs and further refine the survey questionnaire.
We evaluated our theoretical constructs through a series of confirmatory factor analysis (CFA) models estimated
with AMOS 17.0. Composite reliability, Cronbach’s alpha, average variance extracted and the correlations of the
constructs are summarized in Table 1. We assessed the unidimensionality of the constructs by Cronbach’s alpha.
The alpha values were well above the threshold value of 0.70 in the range of 0.86 to 0.90, suggesting that the
construct measurements are sufficiently reliable. The composite reliability of the constructs was also in the range
of 0.87 to 0.90, indicating internal consistency for each set of observed variables in their respective latent construct
(Fornell and Larcker, 1981). The standardized factor loadings range from 0.58 to 0.97 and are statistically significant
at P < 0.01, providing evidence that the theoretical constructs possess convergent validity. The average variance
extracted (AVE) of each construct exceeded the recommended threshold value of 0.50 (Fornell and Larcker, 1981).
The AVE for each construct is also greater than the squared correlation between a pair of constructs, suggesting
discriminant validity of the construct measures. We further tested the discriminant validity of the four key variables
(i.e. environmentally conscious manufacturing, product stewardship, environmental reputation and green advertising)
by conducting CFA. The hypothesized four-factor model (w2 = 179.94, d.f. = 111, CFI = 0.95, TLI = 0.94,
RMSEA = 0.072; where d.f. is degrees of freedom, CFI is the comparative fit index, TLI is the Tucker–Lewis
coefficient and RMSEA is the root mean square error of approximation) has a better fit than the one-factor
model (w2 = 433.20, d.f. = 117, CFI = 0.78, TLI = 0.74, RMSEA = 0.15), showing a significant change in the
chi-square value of 253.26 (Δd.f. = 7, P < 0.001). These results suggested the presence of discriminant validity
for the hypothesized construct measurements.
Two steps were taken to determine whether common method variance is a serious threat to this study. We first
applied Harmon’s one-factor test to assess whether a single latent factor would account for all the theoretical
constructs. A chi-square difference test was conducted between the single latent factor model and the hypothesized
three-factor model. As shown above, a significant difference between the chi-square values of the two models
(Δw2 = 333.08, Δd.f. = 3, P < 0.001) indicated that the fit in the one-factor model is worse than it was in the hypothesized
measurement model, providing preliminary evidence that common method variance is not a problem in this study.
Second, we followed the procedures recommended by Lindell and Whitney (2001) to examine common method
variance. We used the ownership type of the electronics manufacturers as the marker variable to perform the
common method variance analysis, where the marker variable is theoretically unrelated to the dependent variable
(i.e. environmental reputation). The ownership type is not significantly correlated with environmental reputation

Key variables 1 2 3 4 5 6 7 8

1 Environmental conscious manufacturing 1.00

2 Product stewardship 0.75**
3 Environmental reputation 0.53** 0.54** 1.00
4 Green advertising 0.47** 0.55** 0.60** 1.00
5 ROA 0.01 0.06 0.07 0.04 1.00
6 ROE 0.01 0.06 0.07 0.06 0.96** 1.00
7 Net Profit 0.02 0.05 0.10 0.05 0.85** 0.77** 1.00
8 EPS 0.02 0.07 0.11 0.14 0.82** 0.82** 0.60** 1.00
Mean 5.62 5.55 5.06 4.48 6.61 9.60 6.40 2.07
Standard deviation 0.94 1.01 0.98 1.18 9.74 16.80 17.37 3.00
Composite reliability 0.90 0.86 0.89 0.86 - - - -
Cronbach’s alpha 0.90 0.85 0.88 0.87 - - - -
Average variance extracted 0.61 0.61 0.74 0.61 - - - -

Table 1. Composite reliability; Cronbach’s alpha, average variance extracted; descriptive statistics; correlations;
ROA = return on asset; ROI = return on investment; EPS = earnings per share.
**p < 0.01.

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at P > 0.05. We concluded that the measurement model possessed reasonable fit with the data, the constructs
exhibited both convergent and divergent validity, and common method variance did not pose a serious threat to
the interpretation of our study results.

Tests of Hypotheses
Following the proposed guidelines by Ping (1995), we conducted structural equation modelling on the structural
model that consisted of environmentally conscious manufacturing, product stewardship, environmental reputation
and interaction terms that are formed as a product term of green advertising with environmentally conscious
manufacturing, and a product term of green advertising with product stewardship. The model fit measures
indicated acceptable agreement with the covariance in the data (w2 = 323.90, d.f. = 158, CFI = 0.97, TLI = 0.95,
RMSEA = 0.05). We found that environmentally conscious manufacturing is not significantly related to environmental
reputation (b = 0.17, P > 0.05), and green advertising (b = 0.77, P < 0.05) moderated the link between environmen-
tally conscious manufacturing and environmental reputation. Similarly, the structural path of product stewardship
! environmental reputation is insignificant (b = 0.15, P > 0.05) and green advertising moderates this relationship
(b = 0.50, P < 0.05). These results lend support for Hypothesis 1 that green advertising positively influences the
relationship between environmental management practices and environmental reputation.
We found that environmental reputation is positively related to the objective financial performance measures in
terms of ROA (b = 1.44, P < 0.001), ROI (b = 1.43, P < 0.001), profit margin (b = 1.31, P < 0.001) and EPS (b = 1.34,
P < 0.001). The interaction of environmental reputation and green advertising has negative effects on ROA
(b = –1.19, P < 0.001), ROI (b = –1.19, P < 0.001), profit margin (b = –1.04, P < 0.001) and EPS (b = –1.14, P < 0.001).
In support of Hypothesis 2, these results show that environmental reputation is negatively related to financial
performance when green advertising was in place to publicize the environmental commitment of the manufacturer.
Environmental reputation is posited as a mediator between the antecedents (i.e. environmentally conscious
manufacturing and product stewardship) and the dependent variable (i.e. financial performance) as a rival model.
We tested if the antecedents have a direct effect on financial performance, where environmental reputation is no
longer modelled as a mediator. Following Bentler and Bonett (1980), we conducted a chi-square difference test to
compare the hypothesized structural model with the rival model. The rival model is less parsimonious (number
of distinct parameters to be estimated = 38) than the hypothesized model which has fewer distinct parameters to
be established (i.e. 34). Their chi-square difference test result is significant (Δw2 = 10.01, Δd.f. = 4, P < 0.05),
suggesting the rival model did not explain the covariance structure better than that of the hypothesized model. As
it is a more parsimonious model which is preferable, these results suggest that environmental reputation hold a
mediating role to account for financial performance, lending support for Hypothesis 3.

Discussion
We found that environmental management practices are positively related to environmental reputation when
green advertising is used to publicize information about the environmental efforts of manufacturers. These find-
ings suggest that environmental management practices in terms of environmentally conscious manufacturing
and product development alone do not add to the environmental reputation of firms. It requires publicizing of
organizational efforts and results on environmental protection in order to acquire an environmental reputa-
tion. Thus, based on the communication theory, our findings have extended the environmental management
literature by demonstrating the important role of green advertising for environmental reputation. Sharing
information related to corporate environmental protection efforts is a useful mechanism to inform customers
about the environmental impact of organizational products and processes, generating a positive environmental
reputation.
In addition, there is better financial performance when manufacturers have a favourable environmental
reputation. This finding highlights the benefits for manufacturers of developing an environmental reputation to reap
bottom-line gains (Nakra, 2000). However, consistent with our theorization, such an effect is reversed when green

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DOI: 10.1002/bse
126 C. W. Y. Wong et al.

advertising is present, suggesting that green advertising is inadequate to improve bottom-line gains, particularly for
those manufacturers with an established environmental reputation. The market becomes sceptical about the corporate
motivations for pursuing such a green advertising effort, resulting in an unfavourable image of the manufacturers
(Cone et al., 2003; Porter and Kramer, 2002). This result may also be explained by the general perception of electronics
manufacturers – often accused of being a highly polluting industrial sector. There is a lack of effect of green
advertising on the environmental reputation of enterprises and hence improvements in their financial
performance due to insufficient cost investment recovery. We extend the literature on green advertising by identifying
its financial impact.

Theoretical Implications
Although the value of environmental management practices is recognized, it remains unclear how firms can
leverage their environmental protection efforts to acquire an environmental reputation that will be an intangible
asset and hence improve bottom-line gains. This results of this research extend the findings of Surroca et al. (2010),
highlighting the importance of reputation in strengthening the link between environmental management practices
and financial performance. Moreover, the role of green advertising to convey the environmental stance of manufac-
turers based on communication theory is investigated. The findings suggest the need for manufacturers to publicize
information related to their environmental commitment and efforts, which may not be visible to the market.
Specifically, green advertising is important to leverage the environmental manufacturing and product stewardship
efforts to achieve an environmental reputation.
We found an indirect impact of environmental management practices in terms of product stewardship on
financial performance via environmental reputation. This finding resolves doubt on the financial benefits of
environmental management practices (e.g. Brammer and Millington, 2008) involving product design for ease of
disassembly and the use of harmful materials in product development. Product stewardship extending beyond
production stage to reduce the adverse environmental impact of a product’s life-cycle can lead to financial gains.
In line with the communication theory, the insignificant relationship between environmental management
practices and environmental reputation becomes positive when manufacturers publicize their environmental
actions and commitment. The substantive value of green advertising for manufacturers in acquiring a favourable
environmental reputation from their environmental actions is demonstrated, suggesting that manufacturers need to
use green advertising to publicize their environmental achievements. The findings are consistent with our theorization
that customers expect manufacturers with an established environmental reputation to be environmentally responsible
and would question the intention of their promotional efforts in highlighting their environmental commitment. The
positive relationship between environmental reputation and financial performance becomes negative when green
advertising is utilized. This that implies green advertising can be destructive to manufacturers which already have
a good reputation for environmental protection. The findings explain the mixed results on the impact of green
advertising (e.g., Bansal and Clelland, 2004; Mathur and Mathur, 2000) by revealing that such promotional efforts
are not beneficial to manufacturers with an established environmentally friendly reputation. Investing in green adver-
tising may not produce the desired financial returns. Taking such organizational action may be perceived as an effort to
manage impressions rather than an altruistic one, whereas being environmentally responsible is the expected norm for
companies with an established environmental reputation (Porter and Kramer, 2002). As the Taiwan electronics
manufacturing industry is considered a highly polluting industry, its role in conserving the environment has been
recognized as a key management issue. While environmentally reputable electronics manufacturers are expected to
green their environmental processes, including product development, their emphasis on promoting their efforts in
environmental protection fails to engender favourable financial outcomes. The investment made in sponsoring
environmental groups, sharing information related to their environmental commitment, emphasizing the environ-
mental impact of their products and regularly updating their website with information related to their environmental
protection efforts has a negative impact on the financial performance of electronics manufacturers with an established
environmental reputation.

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 23, 117–130 (2014)
DOI: 10.1002/bse
Green Advertising and Environmental Management 127

Managerial Implications
This research has implications for environmental management practices and green advertising. First, the findings
suggest the existence of beneficial as well as detrimental effects of green advertising in publicizing information
related to organizational efforts on environmental protection. Specifically, our study shows the substantive value of
green advertising when manufacturers implement environmental management practices. Managers may therefore
consider the pursuit of green advertising to publicize their environmental commitment and efforts. Doing so will be
beneficial for manufacturers to acquire environmental reputation and subsequently improve financial performance.
However, green advertising is detrimental to the financial performance of manufacturers that are already renowned
for their environmental protection. Managers need to be mindful of the counterproductive effect of green advertising
on financial performance when their firms are considered environmentally reputable. These findings are especially
noteworthy because they clarify the circumstances under which green advertising should be applied (and not applied)
particularly when reputational and financial rewards are the objectives of the manufacturer.
Second, this research advocates environmental reputation to elicit financial improvement. A favourable
reputation is a valuable intangible asset that reflects the success of firms in fulfilling the expectations of stakeholders
(Freeman, 1984). For example, Foxconn Technology group, the largest electronics manufacturing service provider
listed among the Fortune Global 500 companies and the largest corporation in Taiwan, has been working closely
with the government to promote energy conservation and was recognized with the ‘Model of an Energy Saving
Corporation’ award. Developing a positive environmental reputation is conducive to a favourable perception by
stakeholders, which is attractive to customers and investors, contributing to financial gains. The benefits of building
an environmental reputation can be reinforced with green advertising to publicize efforts on environmental
management.
Third, this research provides further evidence on the importance of environmental management practices in
terms of environmentally conscious manufacturing and product development to lessen environmental damage,
improve environmental reputation and subsequently bring about better financial performance. Managers should
consider environmental management practices as an opportunity to improve performance while preserving the
environment by minimizing pollution and consumption of resources, substituting harmful materials, reducing
waste, adopting new technologies and controlling carbon emission in the manufacturing processes and product
development.

Limitations and Future Research

Similar to other management studies, this study is not without limitations and they provide some guidance for
further research. First, this study is limited in that it considers one context – the electronics manufacturing industry
in Taiwan. Although the Taiwanese electronics manufacturing industry is appropriate and representative of the
growing concerns about environmental issues in manufacturing industry, future studies on environmental manage-
ment practices, environmental reputation, green advertising and financial gains across various industries and
countries with different local environmental regulations would be highly relevant. Moreover, an array of potential
influential marketing, operational and social factors such as promotional channels, sourcing decisions and
industry growth are promising areas to explore. This study laid a foundation by identify factors that may have an
impact on the performance outcomes of environmental management practices and the role of green advertising
(Chamorro et al., 2009).
Although a cross-sectional survey approach provides important insights into the phenomenon and the context of
environmental management practices as well as their consequences, a follow-up longitudinal research design could
help provide evidence and ascertain the casual directions of environmental management practices, environmental
reputation, green advertising and financial performance. Lastly, the environmental reputation of firms is measured
by the perceptions of manufacturers. Future studies may collect dyadic data, where the measures of environmental
reputation are gathered from customers in addition to the manufacturers.

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DOI: 10.1002/bse
128 C. W. Y. Wong et al.

Acknowledgements
The authors thank Professor Richard Welford and two anonymous reviewers for their valuable and insightful comments on the earlier
version of this paper. This research was partially supported by the National Science Council, Taiwan (NSC 95-2416-H-022-011) and the
Research Grants Council of the Hong Kong Special Administrative Region, China (PolyU 5017-PPR-12).

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Appendix A: Measurement Scales.

Construct Description

Environmentally • Our company minimizes noise pollution in our manufacturing processes

conscious manufacturing
Product stewardship
Environmental reputation
Green advertising
• Our company uses substitutes for harmful or hazardous materials.
• Our company emphasizes reduce resources consumption in our manufacturing processes
• Our company emphasizes reduce waste in our manufacturing processes
• Our company adopts new technologies to meet our environmental objectives
• Our company controls carbon emission
• Our products are designed with emphasis on energy efficiency
• Our products are made of non-hazardous materials
• Our product package is simplified to reduce waste
• Our products are designed for easy disassembly, reuse and recycling
• Our company has an environmentally friendly corporate image
• Our company has reputed with commitment to environmental protection
• Our customers are satisfied with our efforts in reducing adverse environmental impact
• Our company sponsors environmental groups
• Our company regularly shares information related to our environmental commitment
• Our company emphasizes our environmental impact of our products in our marketing
campaign.
• Our company regularly updates our website with information related to environmental
protection

Notes: All the items use Likert scales (1 = strongly disagree, 7 = strongly agree).

Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 23, 117–130 (2014)
DOI: 10.1002/bse