EXTERNAL ENVIRONMENTAL COSTS AND CORPORATE FINANCIAL PERFORMANCE OF SELECTED LISTED FIRMS IN NIGERIA

Abstract

The study examined external environmental cost and corporate financial performance of selected listed firms in Nigeria. Specifically, the study analysed the effect of external environmental cost on return on assets and return on equity. This study purposefully chose 26 organizations whose financial statements were ready and accessible during the study's time frame from oil and gas industries and the industrial goods sector. Financial statements and annual financial reports of these selected firms were used to compile the data for this study spanning from 2005 to 2019. The estimation technique adopted included correlation, static panel estimation which consists of pooled, fixed and random effects estimation techniques as well as post-estimation tests such as the restricted F-test and Hausman test. The findings showed that external environmental cost had a significant positive effect on return on asset with coefficient estimation of (0.0981382, p < 0.05) which means a 1% rise in external environmental expenses resulted in a 0.098 percent increase in return on asset as a measure of financial performance of the sampled firms. Also, the results of the second model showed that external environmental cost had a positive significant effect on return on equity with a coefficient of (0.082470, p < 0.05), that is a 1% increase in external environmental expenditures resulted in a 0.082 percentage increase in return on equity as a measure of financial performance. According to this study, an increase in an organization's external environmental expenditures has the potential to significantly improve positively the firm's performance in terms of both return on asset and return on equity.