Environmental Factors in Capital Investment Decision Making: Canadian Case Studies
Dr. Dorothy Wood
|The importance of capital investment decision making (CIDM) to firms and the societies in which they operate is noted by Butler, Davies, Pike and Sharp (1993, p.49) and Szpiro and Dimnik (1996). Strategies and policies of the firm should be an integral part of CIDM (Szpiro and Dimnik, 1996, Young, Mermelstein and Williams, 1999). This is especially the case for firms in mature capital intensive industries such as iron and steel, petrochemical and pulp and paper, where high capital costs lead to slow rates of turnover and ‘technological conservatism’ (Saether, 2000). Henriques and Sadorsky (2005) and Davidsdottir and Ruth (2004) suggest that acceleration of stock turnover and introduction of new technologies is likely to be the most effective means of reducing pollutant emissions. Other benefits of new technology are likely to include increased production and greater efficiencies such as reduction of raw material inputs. Research findings strongly suggest that strategic considerations are important to CIDM (Butler et al, 1993; Szpiro and Dimnik, 1996, Abdel-Kader and Dugdale 1998; Young, Mermelstein and Williams, 1999). However, little empirical work has been done to provide an in-depth examination of the aspects of strategy which are considered, particularly in relation to environmental strategy. investigates the In this paper case studies are used to provide an in-depth examination of decisions regarding major purchases of new technology in two industries. The selected industries are pulp and paper – which provides a large firm perspective on CIDM and dry cleaning where the firms are small owner operated firms. |
The introduction of new technology in production processes provides a unique opportunity to reduce raw material usage and pollutant outputs. The choice of less polluting technology may mean a larger capital outlay and little is known about what drives decision makers to invest in cleaner but often more expensive technology. Wood and Ross (2006) examine the use of ‘environmental social controls’ (ESCs) - measures used by society to improve firm environmental performance Key ESCs include environmental regulations, subsidies for improved environmental performance, requirements for environmental disclosures and stakeholder pressure. Wood and Ross investigated the influence of ESCs on CIDM in the Australian context. This follow-up study includes research in both the Australian and Canadian contexts. It investigates “how” and “why” decision makers are motivated to make investments in cleaner (less polluting) technology. Although this study not yet complete, empirical findings suggest that environmental issues are an important consideration for managers in both industries.
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