The relationship between firms’ financial performance and performance measures of circular economy sustainability: an investigation of the G7 countries

Figures & data

Figure 1. Hypotheses development.

Source: authors' projection.

Figure 2. Sample size distribution by area of activity.

Source: authors’ projection

Table 1. Variable definition and source of information.

Group of variables	Name	Description
Financial performance	WACC	- weighted cost of capital, defined as weighted mean of cost of equity and cost of debt, based on firm’s financing structure;
	ROA	- return to assets, defined as operating profit deflated by total assets affected on daily operations;
Circular economy	Resource use	- reflects a company’s performance and capacity to reduce the use of materials, energy, or water, and to find more eco-efficient solutions by improving supply chain management;
	Waste recycled	- it is a ranking score based on the proportion of waste- inventory recycled by each company;
	Management systems	- it is a score that describes if each company applies quality management systems, such as ISO 9000, ISO 14000, or that implemented lean manufacturing, Six Sigma continuous improvement projects, lean Sigma, TQM, or any other similar quality principle:
	Emissions	- measures a company’s commitment and effectiveness towards reducing environmental emission in the production and operational processes;
Organizational and management ability	Governance	- grade a company’s systems and processes capacity, through its use of best management practices, to direct and control its rights and responsibilities through the creation of incentives, as well as checks and balances to generate long term shareholder value;
	Management	- it is a measure of management commitment to company’s objectives and governance principles;
	Innovation	- describes each company’s capacity to reduce the environmental costs and burdens for its customers and thereby creating new market opportunities through new environmental technologies and processes or eco-designed products;
	Strategy	- reflects company’s practices to communicate that it integrates the economic (financial), social and environmental dimensions into its day-to-day decision-making processes;
Control variables	Country effects	- reveal fixed effects that incorporate mostly the institutional factors describing the macroeconomic context of each country;
	Industry effects	- reveal fixed effects that incorporate mostly the institutional factors describing the macroeconomic context of each country;
	Compensation	- it is a dummy variable (true/false) that provide information if a company has implemented a policy concerning the compensation of executives for sustainable economic growth accountability.

Source: authors’ projection, based on Refinitiv database library.

Table 2. Descriptive statistics

Variable	Mean	Std. Dev.	Min.	Max.	Percentiles			Collinearity Statistics		Shapiro-Wilk
					25	50	75	Tolerance	VIF	Stat.	Sig.
WACC	0.060	0.029	−0.016	0.265	0.041	0.056	0.074	–	–	0.910	0.000
ROA	0.038	0.077	−0.772	0.849	0.006	0.035	0.067	–	–	0.839	0.000
Resource Use	72.44	23.07	0.37	99.89	57.55	78.22	92.38	0.522	1.917	0.908	0.000
Waste Recycled	54.21	26.46	1.19	99.48	32.91	55.00	76.83	0.971	1.030	0.966	0.000
Quality systems	47.97	36.39	0.00	96.78	0.00	64.32	77.78	0.963	1.038	0.774	0.000
Emissions	75.03	20.03	0.93	99.89	61.66	79.76	91.86	0.553	1.808	0.922	0.000
Governance	58.06	21.79	2.82	98.66	41.37	59.93	76.01	0.066	15.128	0.974	0.000
Management	58.59	27.12	0.48	99.92	36.62	61.36	81.70	0.077	13.032	0.956	0.000
ESG Innovation	43.89	33.63	0.00	99.75	2.38	50.00	75.00	0.804	1.243	0.901	0.000
CSR Strategy	62.91	26.16	0.00	99.79	44.08	68.96	84.72	0.511	1.958	0.938	0.000
Compensation	0.553	0.497	0.000	1.000	0.000	1.000	1.000	–	–

Source: Authors' calculation.

Figure 3. Differences in financial performance reported.

Source: authors’ projection

Figure 4. Differences in circular economy performance reported.

Source: authors’ projection

Figure 5. Differences on the organizational profile level.

Source: authors’ projection

Table 3. Pearson correlation matrix.

	WACC	ROA	Resource Use	Waste Recycled	Quality systems	Emissions
Resource Use	−0.131**	−0.033	1	0.028	0.142**	0.633**
Waste Recycled	−0.026	0.009	0.028	1	−0.023	0.142**
Quality systems	−0.121**	-.068**	0.142**	−0.023	1	0.074**
Emissions	−0.081**	−0.027	0.633**	0.142**	0.074**	1
Governance	0.069**	−0.051*	0.289**	0.001	0.025	0.236**
Management	0.046	−0.044	0.257**	0.007	0.017	0.213**
Innovation	−0.101**	−0.049*	0.376**	0.042	0.154**	0.360**
Strategy	0.060*	−0.101**	0.437**	0.038	0.079**	0.380**

** Correlation is significant at the 0.01 level (2-tailed).

* Correlation is significant at the 0.05 level (2-tailed).

Source: authors’ calculation.

Table 4. Marginal econometric effects of circular economy measures.

Models	(1)	(2)	(3)	(4)	(5)	(6)
Dependent variable	WACC			ROA
Constant	0.07674*	0.07685*	0.0725*	0.051*	0.04759*	0.04135*
	0.00305	0.00319	0.00291	0.00803	0.00789	0.01360
Resource use	−0.00015*	−0.00014*	−0.00011*	−0.00005	−0.00009	−0.00009
	0.00004	0.00004	0.00004	0.00010	0.00010	0.00012
Waste recycle	−0.00003*	−0.00003*	−0.00001*	0.00003	0.00004	0.00002
	0.00003	0.00003	0.00003	0.00007	0.00007	0.00008
Management system	−0.00009	−0.00007	−0.00009	−0.00014*	−0.00016*	−0.00018*
	0.00002	0.00002	0.00002	0.00005	0.00005	0.00005
Emissions	0.00001	−0.00002	0.00001	−0.00005	0.00003	0.00007
	0.00004	0.00005	0.00004	0.00012	0.00012	0.00013
Fixed effects	–	country	industry	–	country	industry
Model validation
Sample size	1788	1788	1788	1798	1798	1798
R^2 adjusted	0.027	0.050	0.131	0.003	0.044	0.006
F stat	13.23	14.56	23.52	2.410	12.95	3.847
p	0.000	0.000	0.000	0.047	0.000	0.004
Modified BP Test	37.33	35.69	36.86	62.19	60.59	60.69
	0.408	0.000	0.429	0.004	0.006	0.006
Haussman test	–	47.58	19.47	–	80.77	3.311
		0.000	0.001		0.000	0.507
Breusch-Pagan test	-	299.9	557.8	-	253.6	881.5
		0.000	0.000		0.000	0.000

* 1% significance level.

Source: authors’ calculation.

Table 5. Marginal effect of innovation and management factor.

Models	(7)	(8)	(9)	(10)
Dependent variable	WACC		ROA
Constant	0.073316*	0.071352*	0.04403*	0.045206*
	0.003108	0.002991	0.008137	0.007904
Resource use	−0.000155*	−0.00016*	0.000027	−0.000010
	0.000042	0.000041	0.000110	0.000108
Waste recycled	−0.000019	−0.000006	0.000049	0.000029
	0.000026	0.000025	0.000068	0.000066
Management systems	−0.000069*	−0.000091*	−0.000141*	−0.000194*
	0.000019	0.000019	0.000050	0.000051
Emissions	−0.000029	−0.000007	0.000073	0.000119
	0.000045	0.000043	0.000118	0.000115
Resource use x Innovation	−0.000001*	0.000000	0.000000	−0.000001
	0.000003	0.0000003	0.0000007	0.0000007
Governance x Strategy	0.000002*	0.000002*	0.000000	0.000000
	0.000000	0.000000	0.000001	0.000001
Management x Compensation	−0.00004***	−0.000025	−0.000209*	−0.000180*
	0.000021	0.000021	0.000057	0.000055
Fixed effects	country	industry	country	industry
Model validation
Sample size	1788	1788	1798	1798
R^2 adjusted	0.075	0.147	0.062	0.118
F stat	15.50	21.51	12.92	17.06
p	0.000	0.000	0.000	0.000
Modified BP Test	11.35	37.75	9.551	54.27
	0.078	0.389	0.145	0.026

* significant for 1% significance level;.

** significant for 5% significance level;.

Source: authors’ calculation.

Figure 6. Country fixed effects.

Source: authors’ projection

Figure 7. Sector fixed effects.

Source: authors’ projection