Environmental Certification and Technical Efficiency: A Study of Manufacturing Firms in India

Obtaining ISO certification has become a status symbol for adopting environmentally benign practices for the corporate sector in emerging economies. Such certification can help improve the global visibility of firms and is mandated in international trade. This paper attempts to examine the impact of such certifications on technical efficiency of firms belonging to the manufacturing sector in India. In analysing the impact of ISO Certification on technical efficiency, this paper uses data from the CMIE Prowess for the period 2007-2012. In the first step, the paper estimates technical efficiency for the sample firms and then examines the determinants of inter-firm differences in technical efficiency using firm specific characteristics. The results of this study conclude that there are substantial inter-firm differences in technical efficiency and they are systematically different based on firm age, firm size, debt capital, MNE affiliation, and ISO certification. ISO certification, especially maintaining the standards associated with it, turned out to be an important factor in making the firms achieve higher technical efficiency. In addition, the results of this study also confirms that firms that are ISO certified and doing R&D are better off in technical efficiency as compared to the others.