CIRCULAR ECONOMY AND CORPORATE FINANCIAL PERFORMANCE

The present thesis studies the concept of Circular Economy (CE) and its association with Corporate Financial Performance (CFP). Interestingly, the challenging nature of environmental reporting, in general, significantly constrains the existence of a widely acceptable way of measuring Circular Economy Performance (CEP). In addition, the concept of CE is rather new, especially outside China, where governmental regulations for CE have been implemented. As a result, the academic literature seems to lack insights on the relationship between CEP and CFP. In the present study, a novel database is used, in order to measure the CEP of the sample studied. This database is retrieved from the publicly available report of the Dutch Association of Investors for Sustainable Development (VBDO) and it contains the evaluation of 52 Dutch listed companies, in terms of their CEP (Ioannou et al., 2016). In this way, the present thesis aims at filling in the existent research gap and providing interesting insights to both the academic and the corporate world. Previous literature on CE mainly describes the characteristics of the concept and attempts to define the term. Several authors mention that CE originated from Industrial Ecology (Geng & Doberstein, 2008; Yuan et al., 2006; Preston, 2012), which aims at a material symbiosis (Andersen, 2007). Other authors highlight the “3R” principle, which refers to “Reduce, Reuse, and Recycle” of materials and energy (Geng et al., 2009; Liu & Bai, 2014; Su et al., 2013; Wu et al, 2014; Yuan et al., 2006). Despite the contribution of different authors, a widely accepted definition for CE does not exist. Furthermore, a clear division between the concept of CE and similar concepts, such as Corporate Social Responsibility (CSR) and Creating Shared Value (CSV), is also non-existent. Therefore, the present study attempts to also discuss these literature gaps. The major findings of the present study in terms of theory are two. First, after reviewing the existent definitions of CE, the analysis seems to clearly indicate the pivotal role of three main points concerning CE: a) the regenerative and restorative capacity of resources, b) the resource efficiency, and c) the economic growth. Second, the analysis suggest that the concepts of CE and CSR, as well as CE and CSV, differ substantially from each other. As far as the empirical contribution of the present study is concerned, no statistically significant linear relationships seem to hold between CEP and CFP. On the other hand, a significant non-linear relationship seem to hold between CEP and CFP. Specifically, an inverted U-shape relationship seems to hold between CEP and CFP, a fact that may imply the existence of a CE optimal. Moreover, no significant relationship has been discovered concerning the different industry effects. As for the disaggregate analysis, a positive relationship between Strategy & Governance CEP score and CFP may seem to hold, while a negative relationship between Innovation CEP score and CFP may seem to exist. Additionally, the relationship between the indirect component of Strategy & Governance and CFP seems to be stronger, compared to the direct component of Innovation, something that contradicts the authors’ expectations and may require additional research to be clarified. Finally, it is concluded that firm size may work as a moderator on the relationship between CEP and CFP, when CFP is measured by EPS.