This dissertation examines two main research questions: Why do firms deviate from their predicted level of toxic emissions, and how do these differences relate to financial performance? The objective is threefold: (1) to understand deviation in corporate environmental performance by looking at both industry and firm level variables, (2) to see how this deviation relates to both profitability and fluctuations in financial performance, and (3) to see if, and how, corporate environmental legitimacy affects the relationship between corporate environmental deviation and corporate financial performance. To achieve this objective the construct “corporate environmental performance deviation” is developed. It is defined as the extent to which a firm’s environmental performance deviates from its predicted performance, and is used to capture within-firm strategic choices in environmental management. Predicted environmental performance is calculated based on certain firm characteristics such as size and industry. Actual environmental performance is calculated using a weighted score of air emissions obtained from the Toxic Release Inventory (TRI) database. The difference between these two values represents a corporation’s environmental performance deviation. Corporate environmental performance deviation focuses on strategic choices related to environmental management, while recognizing that environmental management is the result of both institutional pressures and within-firm strategic decisions. Aligned with this focus, variables 2 related to this strategic choice are used to explain deviation in environmental management, including an environmental integration capability, firm strategy, and industry munificence and dynamism. Associated with the internal and external organizational analysis, institutional theory and the resource-based view (RBV) are used to explore the tension between deviation to increase competitiveness versus isomorphism to attain legitimacy. The sample is composed of 311 U.S. firms who have reported their toxic air releases to the TRI from 1998-2007. The sample is broken down into two subsets, those that exceed (positive deviation) or fail to meet (negative deviation) predicted environmental performance. Results of a longitudinal analysis show that positive environmental deviation is related to a greater capacity to strategically integrate environmental issues into a firm’s existing business approach, less munificence and dynamism in the task environment, and reduced financial fluctuations. Negative environmental deviation is decreased through a demonstrated capacity to strategically integrate environmental issues into a firm’s existing strategic approach, and related to greater munificence and dynamism in the task environment, reduced profitability and increased financial fluctuations. Lastly, although there are no significant main effects for corporate environmental legitimacy, the paradoxical combination of negative deviation and environmental legitimacy can reduce the severity of the negative financial results to negative deviation, both in terms of profitability and financial fluctuations.

This dissertation examines two main research questions: Why do firms deviate from their predicted level of toxic emissions, and how do these differences relate to financial performance? The objective is threefold: (1) to understand deviation in corporate environmental performance by looking at both industry and firm level variables, (2) to see how this deviation relates to both profitability and fluctuations in financial performance, and (3) to see if, and how, corporate environmental legitimacy affects the relationship between corporate environmental deviation and corporate financial performance. To achieve this objective the construct “corporate environmental performance deviation” is developed. It is defined as the extent to which a firm’s environmental performance deviates from its predicted performance, and is used to capture within-firm strategic choices in environmental management. Predicted environmental performance is calculated based on certain firm characteristics such as size and industry. Actual environmental performance is calculated using a weighted score of air emissions obtained from the Toxic Release Inventory (TRI) database. The difference between these two values represents a corporation’s environmental performance deviation. Corporate environmental performance deviation focuses on strategic choices related to environmental management, while recognizing that environmental management is the result of both institutional pressures and within-firm strategic decisions. Aligned with this focus, variables 2 related to this strategic choice are used to explain deviation in environmental management, including an environmental integration capability, firm strategy, and industry munificence and dynamism. Associated with the internal and external organizational analysis, institutional theory and the resource-based view (RBV) are used to explore the tension between deviation to increase competitiveness versus isomorphism to attain legitimacy. The sample is composed of 311 U.S. firms who have reported their toxic air releases to the TRI from 1998-2007. The sample is broken down into two subsets, those that exceed (positive deviation) or fail to meet (negative deviation) predicted environmental performance. Results of a longitudinal analysis show that positive environmental deviation is related to a greater capacity to strategically integrate environmental issues into a firm’s existing business approach, less munificence and dynamism in the task environment, and reduced financial fluctuations. Negative environmental deviation is decreased through a demonstrated capacity to strategically integrate environmental issues into a firm’s existing strategic approach, and related to greater munificence and dynamism in the task environment, reduced profitability and increased financial fluctuations. Lastly, although there are no significant main effects for corporate environmental legitimacy, the paradoxical combination of negative deviation and environmental legitimacy can reduce the severity of the negative financial results to negative deviation, both in terms of profitability and financial fluctuations.