See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/324087385 The Application of Environmental Management Accounting Techniques by Manufacturing Firms in Kenya Preprint · June 2019 CITATIONS 0 READS 3,408 2 authors: Mumbi Wachira Strathmore University 19 PUBLICATIONS   121 CITATIONS    SEE PROFILE David Wangombe Strathmore University 10 PUBLICATIONS   12 CITATIONS    SEE PROFILE All content following this page was uploaded by Mumbi Wachira on 27 June 2019. The user has requested enhancement of the downloaded file. https://www.researchgate.net/publication/324087385_The_Application_of_Environmental_Management_Accounting_Techniques_by_Manufacturing_Firms_in_Kenya?enrichId=rgreq-5ed536c6dc9c9a5e9fc73445e6efa214-XXX&enrichSource=Y292ZXJQYWdlOzMyNDA4NzM4NTtBUzo3NzQzMDc1Mjk2Mzc4OTJAMTU2MTYyMDcwOTQzMg%3D%3D&el=1_x_2&_esc=publicationCoverPdf https://www.researchgate.net/publication/324087385_The_Application_of_Environmental_Management_Accounting_Techniques_by_Manufacturing_Firms_in_Kenya?enrichId=rgreq-5ed536c6dc9c9a5e9fc73445e6efa214-XXX&enrichSource=Y292ZXJQYWdlOzMyNDA4NzM4NTtBUzo3NzQzMDc1Mjk2Mzc4OTJAMTU2MTYyMDcwOTQzMg%3D%3D&el=1_x_3&_esc=publicationCoverPdf https://www.researchgate.net/?enrichId=rgreq-5ed536c6dc9c9a5e9fc73445e6efa214-XXX&enrichSource=Y292ZXJQYWdlOzMyNDA4NzM4NTtBUzo3NzQzMDc1Mjk2Mzc4OTJAMTU2MTYyMDcwOTQzMg%3D%3D&el=1_x_1&_esc=publicationCoverPdf https://www.researchgate.net/profile/Mumbi-Wachira?enrichId=rgreq-5ed536c6dc9c9a5e9fc73445e6efa214-XXX&enrichSource=Y292ZXJQYWdlOzMyNDA4NzM4NTtBUzo3NzQzMDc1Mjk2Mzc4OTJAMTU2MTYyMDcwOTQzMg%3D%3D&el=1_x_4&_esc=publicationCoverPdf https://www.researchgate.net/profile/Mumbi-Wachira?enrichId=rgreq-5ed536c6dc9c9a5e9fc73445e6efa214-XXX&enrichSource=Y292ZXJQYWdlOzMyNDA4NzM4NTtBUzo3NzQzMDc1Mjk2Mzc4OTJAMTU2MTYyMDcwOTQzMg%3D%3D&el=1_x_5&_esc=publicationCoverPdf https://www.researchgate.net/institution/Strathmore_University?enrichId=rgreq-5ed536c6dc9c9a5e9fc73445e6efa214-XXX&enrichSource=Y292ZXJQYWdlOzMyNDA4NzM4NTtBUzo3NzQzMDc1Mjk2Mzc4OTJAMTU2MTYyMDcwOTQzMg%3D%3D&el=1_x_6&_esc=publicationCoverPdf https://www.researchgate.net/profile/Mumbi-Wachira?enrichId=rgreq-5ed536c6dc9c9a5e9fc73445e6efa214-XXX&enrichSource=Y292ZXJQYWdlOzMyNDA4NzM4NTtBUzo3NzQzMDc1Mjk2Mzc4OTJAMTU2MTYyMDcwOTQzMg%3D%3D&el=1_x_7&_esc=publicationCoverPdf https://www.researchgate.net/profile/David-Wangombe?enrichId=rgreq-5ed536c6dc9c9a5e9fc73445e6efa214-XXX&enrichSource=Y292ZXJQYWdlOzMyNDA4NzM4NTtBUzo3NzQzMDc1Mjk2Mzc4OTJAMTU2MTYyMDcwOTQzMg%3D%3D&el=1_x_4&_esc=publicationCoverPdf https://www.researchgate.net/profile/David-Wangombe?enrichId=rgreq-5ed536c6dc9c9a5e9fc73445e6efa214-XXX&enrichSource=Y292ZXJQYWdlOzMyNDA4NzM4NTtBUzo3NzQzMDc1Mjk2Mzc4OTJAMTU2MTYyMDcwOTQzMg%3D%3D&el=1_x_5&_esc=publicationCoverPdf https://www.researchgate.net/institution/Strathmore_University?enrichId=rgreq-5ed536c6dc9c9a5e9fc73445e6efa214-XXX&enrichSource=Y292ZXJQYWdlOzMyNDA4NzM4NTtBUzo3NzQzMDc1Mjk2Mzc4OTJAMTU2MTYyMDcwOTQzMg%3D%3D&el=1_x_6&_esc=publicationCoverPdf https://www.researchgate.net/profile/David-Wangombe?enrichId=rgreq-5ed536c6dc9c9a5e9fc73445e6efa214-XXX&enrichSource=Y292ZXJQYWdlOzMyNDA4NzM4NTtBUzo3NzQzMDc1Mjk2Mzc4OTJAMTU2MTYyMDcwOTQzMg%3D%3D&el=1_x_7&_esc=publicationCoverPdf https://www.researchgate.net/profile/Mumbi-Wachira?enrichId=rgreq-5ed536c6dc9c9a5e9fc73445e6efa214-XXX&enrichSource=Y292ZXJQYWdlOzMyNDA4NzM4NTtBUzo3NzQzMDc1Mjk2Mzc4OTJAMTU2MTYyMDcwOTQzMg%3D%3D&el=1_x_10&_esc=publicationCoverPdf 1 The Application of Environmental Management Accounting Techniques by Manufacturing Firms in Kenya Mumbi Maria Wachira and David Wang’ombe Abstract Purpose: Though Environmental Management Accounting is a globally recognized accounting practice, its application and development within several developing economies remains stunted. The aim of this paper is to provide an overview of the extent to which Environmental Management Accounting (EMA) practices have been implemented by local manufacturing companies in Nairobi, Kenya. Methodology: We measure the degree to which Environmental Management Accounting methods have been adopted by manufacturing entities and hypothesize that firm size, financial performance and regulation are positively associated to the extent to which Environmental Management Accounting techniques are applied by Kenyan corporations. The paper employs a mixed methods research approach and combines the use of surveys with semi-structured interviews to gain insights into drivers of Environmental Management Accounting and the extent to which these methods are applied locally. Findings: We find environmental regulation and financial performance are positively associated with the level of Environmental Management Accounting practices applied by manufacturing entities. Originality: The findings illustrate the complexities of applying Environmental Management Accounting practices within an emerging context and provides evidence that Environmental Management Accounting practices are still predominantly used by entities to meet local regulatory requirements. The qualitative findings indicate there could be some companies who engage with EMA at a more sophisticated level. Key words: Environmental Management Accounting; Kenya; Business case 2 Introduction Concerns about the state of the planet have intensified in the 21st century due to increasing global temperatures resulting in climate change (Adams & Simnett, 2011; Deegan, 2013; Dilling, 2010; Stanny & Ely, 2008). In the wake of international treaties such as COP 21, the Kyoto Protocol and the Brundtland Commission among others, nations are moving towards the shared task of environmental responsibility (UNFCC, 2015, WCED, 1987). This necessity for accountability has trickled down to businesses as adverse environmental effects have been inexorably linked to corporate activity (Alleyne & Weekes-marshall, 2011; Birkin & Woodward, 1997; Bowen, 1953; Carroll, 1999). Organizations are now under immense pressure to provide a detailed account of the way they interact with natural ecosystems (Parker, 2005). Particularly, the role of accounting, has been extended beyond the confines of conventional financial reporting to the measurement and analysis of the environmental aspects of a firm’s actions through Environmental Management Accounting (EMA) (Cho, Freedman, & Patten, 2012; O’Dwyer & Owen, 2005). Environmental Management Accounting (EMA) is a form of accounting that involves the dissemination of environmental information (known as environmental costs) such as quantities of waste produced, radiation levels discharged, carbon emissions released etc. to support internal decision making within a corporation (Jasch & Stasiškienė, 2005; Schaltegger, Hahn, & Burritt, 2000). The techniques utilized in tracking such costs are varied managerial accounting methods such as lifecycle costing, activity based costing and total cost assessment among others. Ultimately, EMA segregates overhead costs into sub classes of environmental expenditures. The United Nations Division on Sustainable Development (UNDSD) states that the adoption of EMA is vital for corporations to apply cleaner and more productive procedures such as reduction of carbon emissions, efficient use of physical resources such as water, raw materials etc. (Savage, Ligon & Lomsek, 2001). Though EMA is a globally recognized accounting practice, its application and development within several developing economies remains stunted (Burritt, 2004; Jalaludin, Sulaiman, & Ahmad, 2011; Khalid & Dixon, 2012). For instance, Jalaludin, et al. (2011) found that Malaysian manufacturers exhibit relatively low levels of adoption of EMA practices. Additional studies find that the extent to which EMA is applied by corporations within similar contexts is varied and unstructured (Cullen & Whelan, 2006; Gray & Bebbington, 2000). Merely transferring a management accounting technique originally moulded for companies in 3 more developed economies may lack pragmatism. A deeper understanding of the role EMA plays in various contexts is necessary to gauge its fit to varying business environments (Schaltegger et al. 2000). Preceding studies of the application of EMA have shown that the practice is highly beneficial for companies operating in environmentally sensitive industries such as manufacturing (Burritt & Schaltegger, 2010; Masanet-llodra, 2006). The main assertion put forward is that EMA achieves the twin aim of reducing a manufacturing firm’s negative environmental impacts and at the same time lowers operational costs (accruing to an organization) associated with environmental protection (Ferreira, Moulang, & Hendro, 2010; Jasch, 2003). However, despite the multitude of advantages associated with the use of EMA, several firms have still not embraced the practice. Furthermore, alternative streams of research also show that corporations may only use EMA to appear credible to stakeholders and/or because of regulatory pressure (Chang & Deegan, 2010; Qian, Burritt, & Monroe, 2011). In the African context, documented research on the uptake of environmental management accounting practices in the corporate space, is sparse (Rahaman, 2010). With the exception of studies based in South Africa (de Beer & Friend, 2006; de Villiers et al., 2014; de Villiers & Staden, 2006), studies on environmental management accounting and environmental reporting based in Africa have been low. It is therefore necessary to illustrate how local manufacturing companies operating in Africa engage with EMA. Manufacturing companies have been chosen for this study since they are more likely to adopt EMA practices due to the nature of their activities. Kenya also provides an interesting setting to study the adoption of EMA practices for two overarching reasons. First, the manufacturing sector constitutes one out of four main investment areas the Kenyan government is focusing on between 2018 and 2020. The government aims to increase the manufacturing sector’s contribution to GDP to 15% by 2022. Initiatives such as the Industrial Transformation Programme launched by the Ministry of Industrialization and Enterprise Development (MOIED) aims to create a competitive manufacturing sector by boosting local production and expanding to the regional market (MITC, 2018). At the same time, tensions between economic growth and environmental protection especially for developing and emerging economies cannot be ignored (Ngosso, 2013). It is therefore necessary to explore if Kenyan manufacturing companies take such tensions into account by adopting EMA practices. Kenya’s manufacturing industry is among the top ten of Africa’s major manufacturing countries and is ranked third in terms of product competitiveness in international markets. The sector accounts for approximately 11% of the country’s GDP (WEF, World Bank, AfDB, 4 OECD, 2015). However, the industry is burdened by multiple challenges such as high energy costs, unreliable supply of electricity, poor infrastructure, resource scarcity, weak and fragmented policy coordination among relevant government agencies and low levels of technology and product innovation (UNEP, 2014). From a business case perspective, the full adoption of EMA practices could potentially address some of the problems faced by local manufacturers. However, low levels of adoption of environmental management practices among local manufacturing companies have been observed; most entities do not have adequate systems for measuring and tracking environmental costs (Kamande & Lokina, 2013). Thus, the underlying question remains: Is EMA a case of responding to regulation, or is there a business case for its application? Theoretical precepts from stakeholder and legitimacy theories are used as a foundation for our investigation. Framework of Environmental Management Accounting in Kenya The implementation of EMA practices by Kenyan manufacturing companies is not an express requirement by law. However, there are several laws governing environmental protection and natural resource management. Unfortunately, the laws are only known by a select few professionals and minimal action is taken to implement them. The infrastructure necessary to support the legal system is exceedingly inadequate and in many cases implementation of environmental law is the exception and not necessarily the rule. Experience indicates that a predominantly deterrence-based approach centred on the fear of sanctions is not likely to work because there must be a high probability that violations will be detected, and if detected sanctions will follow swiftly. In Kenya, though violations may be detected, fines associated with non-compliance to environmental regulation in many instances are not paid because of corrupt and unethical practices at governmental and company levels. Despite the challenges, the country still has the Environmental Management and Coordination Act (EMCA) which is the main piece of legislation governing environmental management in Kenya and the National Environmental Management Authority (NEMA), which is a governmental body created to enforce the act (EMCA, 1999). NEMA conducts Environmental Impact Assessments on proposed environmental projects, annual environmental audits (EAs), issues licenses such as waste licenses, emissions licenses and effluent licenses to organizations whose activities contribute toward environmental degradation (EMCA, 1999). In addition to regulation, the Kenyan government has also proposed a strategy to transition to a green 5 economy resulting from the United Nations Conference on Sustainable Development held in 2012 (UNCSD, 2012). A green economy would foster resource efficiency in manufacturing processes, lower emissions of greenhouse gases (GHG’s) and bolster the country’s economic growth. In as much as the adoption of EMA is not encouraged directly through governmental intervention, (UNEP, 2014). Though the quality of corporate environmental reporting in Kenya has been studied (Wang’ombe, 2013), the environmental management accounting approaches have not. Literature Review and Hypotheses Development Theoretical framework Earlier research has applied various theories to explain the motivations surrounding the application of EMA practices (Gray & Bebbinton, 2000; Jalaludin et al., 2011; Wang’ombe, 2013). The legitimacy theory for instance, proposes that an entity’s activities must conform to the values and customs extant within the social context it operates in. The main argument put forth is that “the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definitions” (Suchman, 1995, p. 574). The implications of acting outside societal norms are that the organization may encounter difficulties in obtaining support from the community in continuing its operations (Qian & Burritt, 2010; Deegan, 2002), thus implying the notion of a social contract extant between the society and the firm (Farneti & Guthrie, 2009) Notably, the concept of legitimacy can be understood from two varying institutional perspectives that is, strategic (Ashforth & Gibbs, 1994; Dowling & Pfeffer, 1975) vis-à-vis institutional legitimacy (Meyer & Rowan, 1977). The former is focused on the entity and assumes managerial control over the activities undertaken to legitimize the company while the latter is broader and considers how organizations adapt to broader institutional pressures (Suchman, 1995). For the purposes of this paper, aa strategic institutionalist perspective to legitimacy is the prevailing paradigm. Within the context of adoption, the application of EMA practices would be purely for legitimation purposes which is suggestive of a business case for adopters of EMA. A weakness emerges in this perspective since the assumption made is that a business’ environmental management strategy may not reflect the importance it attaches to environmental problems; all its actions are based on public opinion (Shrivastava, 1995). 6 Business and the environment At this juncture, it is imperative to discuss the interlinkage between business, the environment, and accounting practice. The current literature shows that there is an ongoing debate between researchers from two broad schools of thought. For purposes of this study we refer to them as managerial theorists and critical theorists as termed in Owen (2008). Critical theorists aim to challenge the status quo and argue that traditional accounting practice is ill equipped to solve environmental problems as firm objectives are oriented toward profit maximization and not the protection of the environment (Gray & Bebbington, 2000). The fact that the entity pursues its own objectives such as growth or profitability is not in fact the problem. The area of contention stems from the possibility of businesses choosing to pursue their own objectives at the expense of the environment. Viewing the environment through the lens of the corporate world cannot possibly provide a sustainable solution for harbouring environmental risks, specifically because doing so is not their core purpose. Further, accounting methods were not originally designed to capture and measure ecological information. For example, can accounting measure the economic value added to a firm in relation to the aggregate activities undertaken to lower environmental impact; in essence, a firm’s eco-efficiency? Managerial theorists on the other hand, lie on the other side of the debate. The main problem managerial theorists grapple with is how businesses can effectively contribute to addressing their fair share of environmental problems while benefiting from doing so. Some of the advantages associated with environmental pro-activeness in prior literature are in the form of reduced operational costs, increased brand reputation, enhanced competitiveness and heightened levels of creativity and innovation among others (Dyllick & Muff, 2016). Notably research that leans towards a managerialist view tends to be predominantly positivist and attempts to draw associations between financial and environmental performance (Klassen, Mclaughlin, & Carolina, 1996; Makori & Jagongo, 2013). Thus, the bigger picture of providing permanent solutions to environmental exigencies is at the risk of being blurred. Notably, the environment is only one aspect in the wider concept of sustainable development. The notion of sustainable development first coined in the paper “Our Common Future” states that such development meets the needs of the present without compromising on the ability of future generations to meet their own needs (WCED, 1987). Sustainable development is a multi- dimensional concept and comprises of economic, social and ecological considerations. The conundrum is how businesses are to approach this concept holistically without over emphasizing financial performance (Dyllick & Muff, 2016). Within the context of this study, 7 we lean towards the managerial perspective and assume that using EMA practices is a step (albeit small) businesses can take that contributes towards sustainable development. We argue that there is a business case for the adoption of EMA practices and even though EMA alone is insufficient in ensuring total environmental protection, its application is a step towards orienting businesses towards environmental accountability. We therefore explore the drivers of EMA adoption within a Kenyan setting to establish if such practices are widely used by manufacturing entities and what specific factors influence the adoption of such practices. The research also uses both empirical and non-empirical research methods to add depth and texture to the findings. Hypotheses development Size Larger entities face a higher amount of scrutiny from the public and as such, they are more likely to adopt EMA practices to provide a picture of legitimacy (Darnall, Henriques, & Sadorsky, 2010; Patten, 1992). For instance, Cadez & Guilding (2008) and Hoque and James (2000) discovered a positive correlation between large organizations and the application of EMA practices. Contrarily, Liaqat’s (2006) research of Indian manufacturers revealed that the size of companies did not influence the use of specialized management accounting techniques e.g. Activity Based Costing (ABC). Logically though, as entities become larger, it becomes necessary for entities to prepare more detailed accounts (Haldma & Laats, 2002). Managers need to have a better grasp of costs being incurred by different product lines, individual departments, etc. to improve their decision-making capacity. Hence, the adoption of advanced management accounting methods such as EMA would be out of necessity. Thus, the following hypothesis can be drawn: H1: There is a positive association between the size of a manufacturing firm and the level of adoption of EMA practices Cost of compliance Though extant research documents numerous advantages associated with the use of EMA practices, regulatory pressure may be the primary driver of adoption. Jalaludin, et al., (2011) and Khalid & Dixon (2012) both carried out research in Malaysia with the objective of discovering the motives manufacturing entities have for using EMA. The conclusions of both 8 studies were similar as environmental regulation was shown to be the primary reason why companies applied EMA methods. Gadenne, Kennedy & McKeiver (2009) also carried out a comprehensive study of Australian companies with the aim of discovering their motivation for adoption of EMA methods. Their findings also show that Australian firms adopt EMA primarily because of legal compliance. Since there is no consensus on the scope or procedures of EMA, businesses aiming to comply with regulatory provisions may opt for fewer and simplified cost accounting methods that achieve legal compliance at the lowest possible cost to the organization. However, as the scope of environmental laws differ depending on each manufacturing sector, some companies may require more elaborate methods of identifying and segmenting environmental costs. Thus, the following hypothesis is drawn: H2: There is a positive association between the levels of adoption of EMA practices and the costs of compliance to environmental regulations Financial performance Unsurprisingly, findings from research associating financial performance with any form of social and/or environmental accounting has yielded conflicting findings. Judge & Douglas (1999) and Sharma & Vrendeburg (1998) found that corporate entities that incorporated environmental issues into their strategic planning found that doing so had a positive effect on financial performance. Conversely, other researchers have determined a negative relationship exists between environmental management and economic performance or derived inconclusive results about the nature of the relationship between the two variables (Wagner & Schaltegger, 2001) H3: There is a positive association between the levels of adoption of EMA practices and the financial performance of manufacturing companies. Age of the enterprise The age of an enterprise may also have a bearing on the level of EMA observed. Older companies may be better placed to adopt EMA practices as they are likely to have developed advanced managerial accounting systems. For example, Sleihat et al., (2012) illustrated how an entity’s age was a significant factor in determining the extent of manufacturing accounting practices adopted by banks in Jordan. Similarly, O’Connor et al., (2004)’s study of the adoption 9 of Western management accounting procedures among Chinese state-owned enterprises also yielded similar results. Thus, the following hypotheses can be drawn: H4: There is a positive association between the level of EMA adoption and the age of manufacturing companies Next, a company’s level of automated processes in manufacturing such as high-speed machining, rapid prototyping systems and simulation technology among other applications could also be positively associated with the level of EMA observed. For instance, Ferreira et al., (2010) argue that the use of EMA methods is highly associated with process innovation; the use of EMA methods encourages the development of modern production processes. The following can therefore be hypothesized: H5: There is a positive association between the level of EMA adoption and a company’s level of automated manufacturing processes Research Methodology This study utilizes a sequential mixed method research design (Creswell, Clark, Gutmann & Hanson 2003). The rationale for using a mixed method approach is to combine both positivist and interpretivist views to research to yield a more diverse and holistic picture of reality (Ahrens & Chapman, 2006). The research was conducted in two distinct consecutive stages. Quantitative data was gathered in the first stage using questionnaires. After the quantitative data was analysed primarily through descriptive statistics and correlation analysis, the study progressed to a second stage which comprised of semi-structured interviews to gain managerial insights into adoption practices. This combined approach is supported by Bryman (2006) and Johnson & Onwuegbuzie (2004) who state that when using questionnaires in a mixed methods approach, qualitative data is best gathered using semi-structured interviews. Thus, this study offers two different perspectives to understanding the use of EMA practices among Kenyan manufacturers. Target population 10 For purposes of this study, member firms from the Kenya Association of Manufacturers (KAM)-which is a body that represents the collective interests of manufacturing businesses operating locally formed the population for the research. The total number of manufacturing entities operating within Nairobi when the research was conducted were 455 out of a total of 702 registered members (KAM, 2011). Nairobi has been chosen for the scope of study since the city has a prominent industrial area/park where a large number of manufacturing entities are located. In addition, 65% of manufacturing corporations who are members of the Kenya Association of Manufacturers were based in the capital during the time of study. Questionnaires were distributed to all members of KAM operating within Nairobi via post, email and personal delivery. Phone calls, e-mails and company visits were conducted to increase the response rate. The respondents from the survey comprised of 30 management accountants working within the Environmental Health and Safety departments of the manufacturing firm. Burritt, et al., (2002) assert that accountants have the knowledge and expertise of accounting practice and their views are crucial to understanding the extent to which EMA methods are applied. For the semi-structured interviews, production managers were asked open ended questions to gain deeper insights into the drivers of EMA practices. According to Neuman (2005), response rates for questionnaires on average tends to be 9 to 10%. Therefore, questionnaires were distributed to all members of KAM. To enhance the response rate, respondents were contacted personally via telephone and email to confirm their willingness to participate in the study. Only a total of 30 questionnaires and 6 interviews were used for analysis in this study. A low response rate was expected because environmental management is still a relatively new topic of interest in Kenya. Similarly, prior research of developing topics in accounting practice have also yielded low response rates (Jalaludin et al., 2011; Foong, 2002). The profile of respondent firms is illustrated in Table 1. The research also incorporated the use of semi-structured interviews to compliment the findings from the survey. Production managers were targeted as respondents for the interviews since they would be best placed to offer deeper insights into the business case for EMA among manufacturing organizations. The respondents for the interviews were selected based on their willingness to participate in the research. [TABLE 1 ABOUT HERE] 11 Data analysis The degree of EMA adoption was gauged using a checklist of 13 methods, techniques and/or practices oriented towards the tracking, measurement and recording of environmental costs (Burritt, Hahn, & Schaltegger, 2002). A checklist of methods was used in the questionnaire on a binary scale (1=Yes, 0=No) to assess which EMA techniques had been applied by an organization. Next a Cronbach’s α test was conducted to assess internal consistency of responses in the questionnaire (Cronbach’s α=.739). The results obtained are illustrated in Table 2. The values show Cronbach’s α is lower if the item is not included on the scale. As such, all the items on the checklist display internal consistency and are valid. [TABLE 2 ABOUT HERE] To test the hypotheses developed in the empirical review section of the paper, multiple regression analysis was carried out. Notably, all data on both dependent and independent variables were drawn from questionnaires distributed to the manufacturing entities as elaborated on in the research methodology section of the paper. The regression model is therefore estimated as follows: EMA = β0 + β1Comp + β2FinPerf + β3Size + β4Age + β5Tech + ε Each variable is operationalized in Table 3. [TABLE 3 ABOUT HERE] Findings Extent of EMA observed The level of adoption of EMA practices used by respondent companies was also assessed using the checklist of methods in Table 2. Each practice was given a weight of 1/13 to determine the cumulative percentage of practices implemented by each organization. This method of measuring adoption has been used in previous studies (Jalaludin et al., 2011; Gibson & Martin, 2004). As shown in Panel A of Table 3, the minimum level of adoption was at 7.69% representing the bare minimum required for compliance to environmental laws for such cases. The maximum level of adoption was at 84.62%, which indicates that the company had adopted EMA practices beyond legal requirements. Further analysis was carried out to establish which 12 EMA techniques were used most prevalently by respondent companies. The corresponding frequencies were computed as illustrated in Table 4. The techniques were also split into three categories based on suggestions from IMA (1995), UNDSD (2001) and Schaltegger & Burritt (2000). The categories are based on the managerial decisions each technique addresses namely costing, investment and performance evaluation decisions. The findings are presented in Table 4, Panel B. [TABLE 4 ABOUT HERE] The findings indicate that 83.3% of the respondent firms separately identify environmental expenditures and analyse physical flows of materials and energy moving through the production system. Only 13.3% of the manufacturing companies create separate environmental accounts for recording and tracking environmental costs and only two companies representing 6.7% of the sample utilize environmental key performance indicators such as an Environmental Balanced Scorecard to measure the environmental performance of the company. Notably the methods with the highest frequency of use by companies are mainly in the realm of costing decisions. Prior studies have shown that the level of adoption of EMA depend heavily on the firm’s orientation towards ecological issues. Corporations that use EMA primarily for costing decisions are termed in extant studies as reactive and are thus likely to use EMA only to manage regulatory compliance (Qian & Burritt, 2010). Kenyan manufacturing companies are predominantly at the base level of adoption and do not utilize EMA for more elaborate decisions in the firm such as performance evaluation and investment decisions. There are some exceptions, for instance, the conducting of environmental assessments done by 63.3% of firms in the sample. However, certain projects require environmental assessments under Kenya’s Environmental Management and Co-ordination Act. Thus, this point is less about strategic 13 leveraging of EMA practices to evaluate performance for better decision making, and more about meeting regulatory requirements. Testing of hypotheses [TABLE 5 ABOUT HERE] Firm size is not significantly correlated to the degree of adoption of EMA practices. These findings are contradictory to certain studies that show firm size is a significant factor that can explain the extent of corporate environmental and/or social disclosures made (Perez-Batres, Miller, Pisani, Henriques, & Renau-Sepulveda, 2012; Stanwick & Stanwick, 1998). It is however, consistent with Wang’ombe (2013), who found that size was not a significant factor in determining quality of corporate environmental reporting among Kenyan corporations. It appears that in the Kenyan setting, the application of EMA is not pre-determined by entity size. This finding indicates that there is an opportunity for smaller companies such as small and medium enterprises to benefit from the adoption of EMA. Next, the second hypothesis relating to the association between the degree of adoption of EMA methods and the costs of compliance to local environmental regulations was tested. A positive correlation (p<0.01)) is derived which suggests that the extent of EMA methods applied by manufacturing entities is related to the amount of money spent on compliance to environmental regulations. For the third hypothesis, financial performance as measured by ROE was correlated with the level of adoption of EMA practices (denoted as a percentage) for each firm. A positive association is present which implies that implementing EMA practices improves or at least partially contributes to financial performance. Findings from semi-structured interviews To complement the findings from the questionnaires, six semi structured interviews were conducted in a second phase of data analysis to explore managerial perceptions regarding the business case for EMA practices among Kenyan manufacturers. One of the questions posed to the interviewees was if they took environmental issues into account when making managerial decisions. All but one of the respondents affirmed that environmental considerations were incorporated into decision making. The one respondent who disagreed (R3) stated the following: “Not really. To be honest environmental considerations may only feature very indirectly when making pricing, product or budgeting decisions. However, we have separate environmental cost accounts for tracking various environmental costs. But we only do the bare 14 minimum. Perhaps it is time we considered the effect environmental costs have on our costs of production.” The respondents collectively agreed that their companies had taken some steps towards preserving the environment. However, responses were mixed when asked about the reasons they had for using EMA practices. Regulatory pressure, educational background and experience seemed to be some of the main reasons identified for beginning to use EMA. These findings are similar with those of (Seetharaman, Ismail, & Saravanan, 2007). For instance, respondent R1 stated “At the end of the day what it comes down to for our company is making sure we continue to do well and to grow our business. We saw it as a way of almost starting a trend among businesses because I think we were one of the first companies to adopt these practices. So part of it was about “doing good” and growing our businesses. We thought that if we could look for ways to enable our customers to save money and at the same time drive down our operational costs then it would be a win for us.” Alternatively, respondent R2 claimed their main reason was to meet the requirements set by the National Management Environmental Authority (NEMA): “We adopted it at first to meet compliance requirements set by NEMA. We require a certificate from NEMA to operate. So we must be compliant to the rules they have set. But I don’t really understand the rationale they use when listing the requirements, we must meet for compliance. However, we do it because we must.” The sentiments from R2 are also reflected by the findings from the first stage-a positive correlation was found between the level of EMA practices applied and the cost of compliance to NEMA regulations. 15 Finally, respondents were asked if in their opinion a business case exists for the use of EMA practices. Once again the responses were mixed as 2 respondents (R1 and R5) stated that they had experienced significant cost reduction after the implementation of EMA methods within their firms. For example, R5 stated: “EMA has given us a better understanding of our operating costs. We actually track expenditures from each of the individual products we produce. We have been able to make cost reduction decisions by simply identifying these so called ‘hidden environmental costs’ and determining products and production processes that are able to reduce the costs of manufacturing and the overall product cost for the consumer. I would also say in some ways, EMA has forced us to be more innovative which has had a positive impact on the brand. Technology plays a crucial role in ensuring we reduce our carbon foot print. We have found EMA particularly useful in product development, making health and safety decisions for the firm and compliance to local environmental regulations.” The other 4 respondents felt that the main case for applying EMA practices stemmed from the need to meet environmental regulations. Thus, the findings from both phases of the research suggest the possibility of a business case for the implementation of EMA practices. The conclusions are similar those of other researchers who have illustrated the association between various forms of environmental and/or social accounting and financial performance (Bartolomeo et al., 2000; de Beer & Friend, 2006; Gray & Bebbinton, 2000; Klassen & Mclaughlin, 2011; Masanet-llodra, 2006). However, it is interesting to observe that companies implementing EMA within an emerging economy reap benefits from doing so. An interesting contribution from one of the respondents (R1) from the interviews not captured in the first stage of the study was that some companies may be responsible for beginning a trend in the application of EMA practices (even before the EMCA was put in place). Though the respondents did not explicitly state size is a precursor to applying EMA, R1’s response suggests that larger and more established firms usually set the trend for other businesses. This response is in line with the precepts stemming from institutional theory. Discussion The findings from the research show that separately identifying environmental costs and quantifying units of waste and energy streams involved in production processes are the predominant methods of EMA used by manufacturers. These two techniques are also referred 16 to as environmental cost accounting and materials flow analysis respectively. Notably, both methods fall within the costing decisions category. We can also conclude that companies that only use methods listed in the first category (i.e. for costing decisions) only apply EMA to manage regulatory compliance. The results from the correlation analysis also show that the costs of compliance to environmental regulations and the extent of adoption are positively correlated. These results are similar to Jalaludin, et al. (2011) who also found that regulatory pressure significantly influenced the use of EMA. Though this study was limited in establishing causality (i.e. the influence of regulation on adoption), further analysis with a larger sample of companies may arrive at this conclusion. The results obtained from the interviews also suggest that compliance to local environmental laws does play a significant role in influencing the level of adoption of EMA practices in Kenyan manufacturing firms. In comparison, only 26% of the sampled firms used EMA practices associated with aiding investment decisions. These results differ from those of Medley (1997) who proposed that organizations would consider environmental costs crucial in evaluating investment proposals. Only two out of the thirty respondents (6.7%) used environmental key performance indicators to evaluate environmental performance. It would seem regulation still plays a major role in contributing to the application of EMA practices. Interestingly, despite the difficulties associated with law enforcement of the EMCA as previously discussed, meeting environmental regulatory requirements is still perceived to be essential by Kenyan manufacturers. This assertion is backed both by the findings from the multiple regression model and from the semi-structured interviews. Regulation is definitely a key factor that influences the level of EMA observed among Kenyan manufacturers. Yet, an exception was observed in the first respondent’s answer regarding their company’s motivation for using EMA. It appears there could be some companies that have adopted EMA beyond what is legally required (as was the case with said company) and who utilize the practice to achieve the twin aim of lowering ecological impacts and reducing operational costs. Another relevant observation from the multiple regression analysis is the association between financial performance and EMA practices. Arguably, there could be a business case for the implementation of EMA practices for manufacturing entities. This supposition is supported by the findings from the semi-structured interviews as two of the respondents stated their companies achieved significant reductions in operating costs after implementing EMA practices. 17 Conclusion Though there are significant improvements in Kenya’s infrastructure, agricultural production and manufacturing industry, several reforms must be put in place to encourage the use of modified accounting methods (such as EMA) among manufacturing businesses. One of the country’s national goals is to transition to a green economy by 2030. The adoption of EMA practices is indubitably one of the ways the local manufacturing sector can contribute towards this transition. As stated previously, the implementation of EMA practices has helped businesses to recognize the environmental effects of their operational decisions and to make critical managerial decisions. The results of the study show that there are companies that utilize EMA practices beyond the requirements of legal compliance and the findings from the interviews show some companies use EMA as an avenue for seeking investments in cleaner production technology, lowering costs of production, product development among other reasons. Yet, we still observed low levels of adoption of EMA practices are prevalent among manufacturing businesses in Nairobi. Evidently there is a business case for the adoption of EMA practices as prior studies have shown. In Kenya, though, it seems companies are yet to fully appreciate the advantages associated with EMA considering the interaction between their production activities and its effect on the environment. The adoption of EMA practices needs to be encouraged so that businesses can apply the practice beyond compliance. The government can introduce tax incentives to companies that exhibit high levels of adoption of EMA. In addition, a carbon trading scheme could be created by the local government to encourage the use of carbon financing especially since the findings on the level of EMA indicate that very few of the respondents seemed to integrate environmental costs e.g. cost of carbon emissions into their management costing decisions. Future research into EMA practices could attempt to investigate other possible determinants of adoption such as stakeholder pressure and institutional pressure. Furthermore, the adoption of EMA practices could be examined in other industries or institutions such as universities, financial institutions, etc. Universities for instance do not generate extensive environmental impacts in comparison to manufacturing corporations. However, they play a significant role in influencing changes in environmental behaviour through education and research (Chang & Deegan, 2010). Specifically, further research is required to explore EMA practices in waste management industries (Burritt & Saka, 2006). In Kenya, research into the way EMA is 18 practiced in the Nairobi City Council could be a step towards reforming the way waste is managed within Nairobi. In addition, there is no international consensus on the practices that should be encapsulated within EMA. Since the practice is relatively new, the accounting methods used are heavily based on conventional accounting practices. For example, Environmental Cost Accounting (ECA) which is a subset of EMA is heavily based on Activity Based Costing (ABC). The major difference is in EMA, the environment is used as a cost driver (Qian, Burritt, & Monroe, 2011). 19 References Adams, S., & Simnett, R. (2011). Integrated Reporting: An Opportunity for Australia’s Not-for-Profit Sector. Australian Accounting Review, 21, 292–301. Ahrens, T., & Chapman, C. S. (2006). Doing Qualitative Field Research in Management Accounting: Positioning Data to Contribute to Theory. Handbooks of Management Accounting Research, 1, 299– 318. Alleyne, P., & Weekes-marshall, D. (2011). An Exploratory Study of Management Accounting Practices in Manufacturing Companies in Barbados. International Journal of Business & Social Science, 2(9), 49–58. Ashforth, B. E., & Gibbs, B. W. (1990). The double-edge of organizational legitimation. Organization Science, 177–194. Bartolomeo, M., Bennett, M., Bouma, J. J., Heydkamp, P., James, P., & Wolters, T. (2000). Environmental management accounting in Europe: current practice & future potential. European Accounting Review, 9(1), 31–52. Birkin, F., & Woodward, D. (1997). Accounting for the sustainable corporation. Environmental Management & Health, 8(2), 67-72. Bowen, H. R. (1953). Social Responsibilities of the Businessman. New York: Harper. Bryman, A. (2006). Integrating quantitative & qualitative research: how is it done? Qualitative research, 6(1), 97-113. Burrit, R. L., Hahn, T., & Schaltegger, S. (2002). Towards a comprehensive framework for environmental management accounting - Links between business actors & environmental management accounting tool. Australian Accounting Review, 12(2), 39–50. Burritt, R. L. (2004). Environmental management accounting: Roadblocks on the way to the green & pleasant l&. Business Strategy & the Environment, 13(1), 13–32. Burritt, R. L., & Saka, C. (2006). Environmental management accounting applications & eco-efficiency: case studies from Japan. Journal of Cleaner Production, 14(14), 1262-1275 Burritt, R. L., & Schaltegger, S. (2010). Sustainability accounting & reporting: fad or trend? Accounting, Auditing & Accountability Journal, 23(7), 829–846. Cadez, S., & Guilding, C. (2008). An exploratory investigation of an integrated contingency model of strategic management accounting. Accounting, organizations & society, 33(7), 836-863. Campbell, J. L. (2007). Why Would Corporations Behave in Socially Responsible Ways? An Institutional Theory of Corporate Social Responsibility. Academy of Management Review, 32(3), 946–967. 20 Carroll, A. B. (1999). Corporate Social Responsibility: Evolution of a Definitional Construct. Business & Society, 38(3), 268–295. Chang, H., & Deegan, C. (2010). Exploring factors influencing environmental management accounting adoption at RMIT university. 6th Asia Pacific Interdisciplinary Research in Accounting Conference, 11–13. Cho, C. H., Freedman, M., & Patten, D. M. (2012). Corporate disclosure of environmental capital expenditures: A test of alternative theories. Accounting, Auditing & Accountability Journal, 25, 486–507. Creswell, J. W., Clark, V. L., Gutmann, M. L., & Hanson, W. E. (2003). Advanced mixed methods research designs. Handbook of mixed methods in social & behavioural research, 209-240. Cullen, D., & Whelan, C. (2006). Environmental management accounting: the state of play. Journal of Business & Economics Research, 4(10), 1–6. Darnall, N., Henriques, I., & Sadorsky, P. (2010). Adopting proactive environmental strategy: The influence of stakeholders & firm size. Journal of Management Studies, 47(6), 1072–1094. de Beer, P., & Friend, F. (2006). Environmental accounting: A management tool for enhancing corporate environmental & economic performance. Ecological Economics, 58(3), 548–560. Deegan, C. (2013). The accountant will have a central role in saving the planet. really? A reflection on “green accounting & green eyeshades twenty years later.” Critical Perspectives on Accounting, 24(6), 448–458. Dilling, P. F. (2010). Sustainability Reporting in A Global Context: What are the Characteristics of Corporations that Provide High Quality Sustainability Reports - An Empirical Analysis. The International Business & Economics Research Journal, 9(1), 19–30. Dowling, J., & Pfeffer, J. (1975). Organizational legitimacy: Social values & organizational behaviour. Pacific Sociological Review, 18, 122–136. Dyllick, T., & Muff, K. (2016). Clarifying the meaning of sustainable business: Introducing a typology from business-as-usual to true business sustainability. Organization & Environment, 29(2), 156-174. EMCA (1999). Environmental Management and Co-ordination Act. No. 8. Retrieved from: https://www.nema.go.ke/index.php?option=com_content&view=article&id=24&Itemid=163 Farneti, F., & Guthrie, J. (2009). Sustainability reporting by Australian public-sector organisations: Why they report. Accounting Forum, 33, 89–98. Ferreira, A., Moulang, C., & Hendro, B. (2010). Environmental management accounting & innovation: an exploratory analysis. Accounting, Auditing & Accountability Journal, 23(7), 920–948. https://www.nema.go.ke/index.php?option=com_content&view=article&id=24&Itemid=163 21 Foong, P.Y. (2002). The role of problems to enhance pedagogical practices in the Singapore mathematics classroom. The Mathematics Educator, 6(2), 15-31. Gadenne, D. L., Kennedy, J., & McKeiver, C. (2009). An empirical study of environmental awareness & practices in SMEs. Journal of Business Ethics, 84(1), 45-63. Gray, R., & Bebbington, J. (2000). Environmental Accounting, Managerialism & Sustainability: Is the Planet Safe in the Hands of Business & Accounting? Advances in Environmental Accounting & Management, 172(1), 1–44. Haldma, T., & Lääts, K. (2002). Contingencies influencing the management accounting practices of Estonian manufacturing companies. Management Accounting Research, 13(4), 379-400. Hoque, Z., & James, W. (2000). Linking balanced scorecard measures to size & market factors: impact on organizational performance. Journal of management accounting research, 12(1), 1-17. IMA (1995). Institute of Management Accountants. Implementing Corporate Environmental Strategies, IMA, NJ. Jalaludin, D., Sulaiman, M., & Ahmad, N. N. N. (2011). Understanding environmental management accounting (EMA) adoption: a new institutional sociology perspective. Social Responsibility Journal, 7(4), 540–557. Jasch, C. (2003). The use of Environmental Management Accounting (EMA) for identifying environmental costs. Journal of Cleaner Production, 11(6), 667–676. Jasch, C., & Stasiškienė, Ž. (2005). From Environmental Management Accounting to Sustainability Management Accounting. Environmental Research, Engineering & Management Science, 34(4), 77–88. Johnson, R. B., & Onwuegbuzie, A. J. (2004). Mixed methods research: A research paradigm whose time has come. Educational researcher, 33(7), 14-26. Kamande, M., & Lokina, R. (2013). Clean Production and Profitability: An Eco-efficiency Analysis of Kenyan Manufacturing Firms. The Journal of Environment & Development, 22(2), 169-185. Retrieved from http://www.jstor.org/stable/26199442 KAM (2011). Kenya Association of Manufacturers. Retrieved from: http://kam.co.ke/membership/ Khalid, F. M., & Dixon, K. (2012). Environmental Management Accounting Implementation in Environmentally Sensitive Industries in Malaysia. In 6th NZ Management Accounting Conference, Palmerston North, (pp. 1–31). Klassen, R. D., Mclaughlin, C. P., & Carolina, N. (1996). The Impact on of Environmental Management Firm Performance. Management Science, 42(8), 1199–1214. http://kam.co.ke/membership/ 22 Liaqat, A. (2006). Applications of contemporary management accounting techniques in Indian industry. Chartered Management Accountant, 64(8), 8-13. Makori, D. M., & Jagongo, A. (2013). Environmental Accounting & Firm Profitability: An Empirical Analysis of Selected Firms Listed in Bombay Stock Exchange, India. International Journal of Humanities & Social Science, 3(18), 248–256. Masanet-llodra, M. J. (2006). Environmental Management Accounting: A Case Study Research on Innovative Strategy. Journal of Business Ethics, 68, 393–408. http://doi.org/10.1007/s10551-006- 9029-1 Medley, P. (1997). Environmental accounting-What does it mean to professional accountants? Accounting, Auditing & Accountability Journal, 10(4), 594-600. Meyer, J. W., & Rowan, B. (1977). Institutionalized organizations: Formal structure as myth & ceremony. American journal of sociology, 83(2), 340-363. MITC (2018). Kenya’s Industrial Transformation Programme (Abridged Version) - Ministry of Industry, Trade and Cooperatives. Retrieved March 29, 2019, from http://www.industrialization.go.ke/index.php/downloads/282-kenya-s-industrial-transformation- programme Moghalu, K.C., 2014. Emerging Africa: how the global economy’s “last frontier” can prosper & matter, London: Penguin Group. Neuman, W. L. (2005). Social research methods: Qualitative and quantitative approaches (6th ed.). Boston, MA: Allyn & Bacon. O'Connor, N. G., Chow, C. W., & Wu, A. (2004). The adoption of “Western” management accounting/controls in China's state-owned enterprises during economic transition. Accounting, Organizations and Society, 29(3-4), 349-375. O’Dwyer, B., & Owen, D. L. (2005). Assurance statement practice in environmental, social & sustainability reporting: A critical evaluation. British Accounting Review, 37, 205–229. Özsözgün Çalişkan, A. (2014). How accounting & accountants may contribute in sustainability? Social Responsibility Journal, 10, 246–267. Parker, L. (2005). Social & environmental accountability research: A view from the commentary box. Accounting, Auditing & Accountability Journal 18, 842-860. Patten, D. M. (1992). Intra-industry environmental disclosures in response to the Alaskan oil spill: A note on legitimacy theory. Accounting, Organizations & Society, 17(5), 471–475. http://www.industrialization.go.ke/index.php/downloads/282-kenya-s-industrial-transformation-programme http://www.industrialization.go.ke/index.php/downloads/282-kenya-s-industrial-transformation-programme 23 Perez-Batres, L., Miller, V., Pisani, M., Henriques, I., & Renau-Sepulveda, J. (2012). Why Do Firms Engage in National Sustainability Programs & Transparent Sustainability Reporting?: Evidence from Mexico’s Clean Industry Program. Management International Review, 52, 107–136. Qian, W., Burritt, R., & Monroe, G. (2011). Environmental management accounting in local government. Accounting, Auditing & Accountability Journal, 24(1), 93–128. Rahaman, A. S. (2010). Critical accounting research in Africa: Whence and whither. Critical Perspectives on Accounting, 21(5), 420-427. Savage, D. E., Ligon, P. J. & Lomsek, J. (2001). Policy Pathways for Promoting Environmental Management Accounting (EMA), United Nations Division for Sustainable Development, Department of Economic & Social Affairs, Retrieved from: http://www.un.org/esa/sustdev/estema1.htm Schaltegger, S., Hahn, T., & Burritt, R. (2000). Environmental management accounting: Overview & main approaches. Center for Sustainability Management. Seetharaman, Ismail, M., & Saravanan, A. S. (2007). Environmental Accounting as a Tool for Environmental Management System. Journal of Applied Sciences and Environmental Management, 11(2), 137–145. Sharma, S., & Vredenburg, H. (1998). Proactive environmental strategy & the development of competitively valuable organizational capabilities. Strategic Management Journal, 183-200. Shrivastava, P. (1995). The role of corporations in achieving ecological sustainability. Strategic Management Journal, 936-960. Sleihat, N., Al-Nimer, M., & Almahamid, S. (2012). An exploratory study of the level of sophistication of management accounting practices in Jordan. International Business Research, 5(9), 217. Stanny, E., & Ely, K. (2008). Corporate Environmental Disclosures about the Effects of Climate Change. Corporate Social Responsibility & Environmental Management Journal, 15, 338–348. Stanwick, P. A., & Stanwick, S. D. (1998). The Relationship Between Corporate Social Performance, & Organizational Size, Financial Performance, & Environmental Performance: An Empirical Examination, 195–204. Suchman, C. M. (1995). Managing legitimacy: Strategic & Institutional approaches. Academy Management Review, 20(3), 571–61. UNCSD (2012). United Nations Conference on Sustainable Development, Rio+20. Retrieved from: https://sustainabledevelopment.un.org/rio20. - abgerufen am 2019-03-29. — Sustainable development goals: Knowledge platform 24 UNEP. (2014). Green Economy Assessment Report-Kenya. Nairobi, Kenya. Retrieved from: https://www.cbd.int/financial/values/kenya-geassessment2014.pdf UNFCC (2015). Intended Nationally Determined Contribution (INDC) submission. Retrieved from: https://www4.unfccc.int/sites/submissions/INDC/Submission%20Pages/submissions.aspx Wagner, M., & Schaltegger, S. (2001). The Relationship between the Environmental & Economic Performance of Firms. ESST Annual Scientific Conference (pp. 95-108). Strasbourg: EBSCO Publishing. Wang’ombe, D. K. (2013). The quality of corporate environmental reporting in Kenya. International Journal of Economics and Accounting, 4(4), 327-349. WCED. (1987). Our common future. World Commission on Environment & Development Oxford University Press. WEF (2017). 4 ways Africa can achieve a manufacturing renaissance. World Economic Forum. WEF, World Bank, AfDB, OECD. (2015). The Africa Competitiveness Report 2015. Geneva: World Economic Forum. https://www4.unfccc.int/sites/submissions/INDC/Submission%20Pages/submissions.aspx 25 Tables Table 1: Subsectors of the manufacturing industry Manufacturing sector Frequency Percentage (%) Food, Beverages and Tobacco 9 30.0 Textiles and Garments 2 6.7 Metal and Allied 2 6.7 Paper and Paperboard 4 13.3 Timber and Products 2 6.7 Building and Construction 4 13.3 Plastics and Rubber 1 3.3 Pharmaceutical and Medical Equipment 2 6.7 Chemical and Allied 4 13.3 Total 30 100 26 Table 2: Cronbach’s α test for reliability EMA Method α if item is deleted Allocation of environmental costs to production activities .707 Creation of environmental cost accounts .671 Incorporation of environmental goals into overall firm strategy .736 Estimation of long term and short-term effects of environmental impacts .684 Identification of environmental related expenditures .738 Inclusion of environmental costs in investment appraisals .684 Utilization of environmental key performance indicators (KPIs) .715 Analysing physical flows of materials and energy moving through the .739 production system Identification of opportunities for reduction of environmental impact caused by .704 Products Quantification of environmental costs over a product's life .708 Estimation of potential environmental contingencies .689 Inclusion of environmental costs into product pricing .732 Conducting environmental management training programs for employees .721 Cronbach’s α .739 27 Table 3: Operationalization of variables Description Measurement EMA The extent of EMA methods used The extent or level of adoption is measured based in the number of methods or techniques used on a binary scale Comp Level of compliance The extent to which companies incur costs related to litigation and/or fines imposed by non-compliance to environmental regulations Finperf Financial performance Return on equity (ROE) for year ended 2013 Size Size of the company Number of employees working for the organization Age Age of the company Number of years the company has been operational Tech Level of technology Number of automated manufacturing processes utilized by the company 28 Table 4: Summary of individual EMA practices adopted by manufacturing companies Panel A The level of adoption of EMA Minimum score 7.69% Mean score 84.62% Mean score 31.60% Panel B Category EMA Method N Percent of cases Costing decisions Allocation of environmental costs to production activities 6 20.0% Creation of environmental cost accounts 4 13.3% Analysing physical flows of materials and energy moving 25 83.3% through the production system Identification of environmental related expenditures 25 83.3% Inclusion of environmental costs into product pricing 11 36.7% Quantification of environmental costs over a product's life 9 30.0% Investment decisions Estimation of long term and short term effects of environmental 8 26.7% Impacts Inclusion of environmental costs in investment appraisals 8 26.7% Performance Incorporation of environmental goals into overall firm strategy 3 10% evaluation decisions Utilization of environmental key performance indicators (KPIs) 2 6.7% Identification of opportunities for reduction of environmental 2 6.7% impact caused by products Estimation of potential environmental contingencies 13 43.3% Conducting environmental assessment programs 19 63.3% Total 30 100% 29 Table 5: Determinants of the application of EMA methods Variables Predicted outcome OLS model p values VIF Independent variables Coefficients Compliance + 3.977 (1.858) **0.043 2.568 Financial performance + 6.038 (2.241) **0.013 4.309 Company size + 0.561 (1.219) 0.649 1.409 Control variables Company age 0.029 (0.053) 0.591 1.677 Level of technology 0.069 (0.035) 0.446 2.568 Constant 8.691 (7.047) **0.014 R Squared 0.598 Observations 30 The standard errors are in parentheses. ***, **, and * denote levels of significance at 1, 5, and 10% respectively 30 Appendix 1 Interview guide 1. What commitments has your firm made in regard to preserving the environment? a. Do you take environmental considerations into account when making decisions? Which decisions in particular? b. Budgeting decisions c. Costing decisions d. Investment decisions e. Product pricing decisions f. Others? Please specify 2. Why did you start using EMA? a. Educational background b. Elevated environmental consciousness c. Need to comply with local regulations d. Others? 3. What would you say was the main influencing factor that led to the adoption of EMA? Why do you think that? 4. What are some of the benefits you have experienced resulting from adoption? a. Better financial performance b. Enhanced reputation c. Reduced operational costs d. Others? 5. Are there any challenges you have experienced with the adoption of EMA? View publication stats https://www.researchgate.net/publication/324087385