Environmental Certification as a Buffer Against the Liabilities of Newness and Smallness: Firm Performance Benefits

Abstract

Sustainable entrepreneurship encourages a focus on innovation, efficiency and environmentally-friendly actions. Certification enables firms to accumulate legitimacy that enables stakeholders to know of, and understand, a firm’s activities: it is a mechanism to buffer against the liabilities of newness and smallness. Building on insights from the resource-based view of the firm, institutional theory and signalling theory, this article conceptualises environmental certification as an observable high-quality resource investment signal. This resource fosters innovation and encourages certified firms to accumulate and mobilise legitimacy. Regression analysis detected that very young and micro firms who cited the compounded signal of certification reported significantly higher levels of effectiveness. Micro firms that cited the compounded signal of certification reported weakly significantly higher levels profitability. Certification enables very young, rather than young firms, to address the liabilities of newness, and enables micro, rather than small firms, to address the liabilities of smallness.