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Assessment of the Impact of Environmental Operating Costs on
Return on Assets: Evidence from Listed Breweries in Nigeria
Ogundipe Francis Bamidele
1
, Olatunji Opefolu Francis
2
, Omodara Busuyi Emmanuel
3
, Bamidele
Vincent Olawale
4
Department of Accounting, Ekiti State University. Ado Ekiti, Ekiti State, Nigeria
1,2
Department of Accounting and Finance, Ajayi Crowther University. Oyo, Oyo State, Nigeria
3
Department of Accounting, Federal College of Education (Technical), Gusau. Zamfara State, Nigeria
4
DOI:
https://doi.org/10.51244/IJRSI.2025.120800061
Received: 09 July 2025; Accepted: 15 July 2025; Published: 04 September 2025
ABSTRACT
This study examines the effect of environmental operating costs on the return on assets of consumer goods
firms: evidence from listed breweries industries in Nigeria. Specifically, the study sought to evaluate the effect
of prevention costs, appraisal costs and external failure costs on the return on assets of the selected
manufacturing firms. The population for this study consists of 21 Consumer goods listed on Nigeria exchange
group (NGX). The study made use of purposive sampling to select four (4) breweries companies operating in
Nigeria spanning for 10 years (2014-2023). A panel data regression approach was utilized to scrutinize the
information collected from four selected businesses. Both descriptive and inferential methodologies were
employed in the analysis. The regression analysis indicated a regression coefficient of PC at -0.9376,
accompanied by a t-value of -5.2179 and a significance level (p-value) of 0.0000 (p<0.05) which indicate a
significant inverse relationship between prevention costs and the return on assets for the evaluated companies.
In the case of ACST, the regression coefficient stands at 17.1978, with a t-statistic of 1.8009 and a p-value of
0.0801 indicates that the influence of ACST on return on assets is not statistically significant at the 5% level.
Also, the regression coefficient for external failure costs is -29.6962, paired with a p-value of 0.0376 (p<0.05).
Regression analysis revealed that, after controlling for all variables, prevention and external failure costs had
significant negative effects on ROA, while appraisal cost had a positive but statistically insignificant effect.
The study concludes that prevention expenses significantly affect returns on assets. It also indicated that
appraisal costs do not show any statistically meaningful impact on returns on assets. Additionally, it
highlighted that external failure costs negatively influence the return on assets of the chosen companies. The
study recommends among others that firms should keep a close eye on the costs related to prevention,
appraisal and external failures in order to evaluate the effectiveness of their quality management practices.
Keywords: Environmental operating costs, prevention costs, appraisal costs, external failure costs, return on
assets.
INTRODUCTION
The state of the global environment, along with the influence of humanity on ecological systems, has generated
significant public interest and examination concerning the actions and effectiveness of various firms, according
to Agbiogwu et al. (2016). Furthermore, businesses are demonstrating their commitment to the environment by
adopting the practice of environmental accounting. Akpan (2013) characterized environmental accounting as a
specialized accounting method aimed at assessing the repercussions of business choices after conducting
thorough environmental assessments, which is supposed to ensure that the organization acts in an ecologically
responsible manner. The focus of environmental accounting primarily lies in understanding the expenses and
advantages linked to the utilization of natural resources. Adejola (2013) characterized environmental costs as
the expenses, whether capital or recurrent, that a company incurs to guarantee that its operations do not inflict
harm on the environment or worsen environmental degradation stemming from its activities. Often,
INTERNATIONAL JOURNAL OF RESEARCH AND SCIENTIFIC INNOVATION (IJRSI)
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pinpointing environmental costs proves to be a challenging endeavor for companies, particularly when
expenses are obscured within general overheads rather than being distinctly categorized.
The relationship between environmental operating costs and firm performance is influenced by factors such as
industry regulation, cost structures, and disclosure practices. Numerous studies have explored this issue, with
several indicating a substantial correlation between environmental expenditures and financial performance
(Abiola & Olugbenga, 2021), while others have showcased a negative and insignificant relationship between
environmental spending and financial results (Nyahuna & Doorasamy, 2023).
Conversely, some perspectives contend that the upfront expenses tied to environmental management can yield
long-term financial savings and improve overall performance, challenging the assumption that all
environmental expenditures are harmful. This viewpoint underscores the value of strategically investing in
environmental projects for achieving enduring financial growth. While some individuals assert that the costs
related to environmental management do not contribute to enhanced financial performance. The variation in
findings may stem from differences in the proxies employed to measure the variables, the data sources, and the
estimation techniques utilized. Nevertheless, this research examined environmental costs through the
frameworks of prevention costs, appraisal costs, and external failure costs to analyze their impact on the
financial performance, which was proxied by return on assets of the selected consumer goods firms in Nigeria.
The objectives of this research were hypothesized in null form as follows:
1. There is no significant effect of prevention costs on return on assets of selected manufacturing firms.
2. There is no significant effect of appraisal costs on return on assets of selected manufacturing firms.
3. There is no significant effect of external failure costs on return on assets of selected manufacturing firms.
Conceptual Review
Prevention costs
Prevention costs are the expenses a company incurs to prevent environmental issues from occurring or to
reduce the chances of such issues arising. For instance, a company that installs a filtration system to stop
chemical runoff into rivers is taking action to ensure that future environmental harm does not affect the
surrounding ecosystem where it operates (Adebisi & Akwu 2024). These preventative expenses help avert
future complications and are regarded as a longer-lasting, more sustainable, and proactive approach to
investing in the environment. The components of these costs consist of:
Maintenance expenses for facilities: these funds support the upkeep of facilities and equipment for
managing hazardous and toxic waste.
Signs and barriers intended to enhance safety and prevent accidents.
Training and educational expenses for employees concerning environmental monitoring and other
relevant activities.
Appraisal costs
Appraisal costs are the expenditures associated with a business’s efforts to assess its environmental risks.
These costs are environmental performance. While monitoring systems do not prevent issues from occurring,
they facilitate quick identification and management of any environmental problems that may arise (Adebisi &
Akwu 2024). The components of appraisal costs include:
Fees for coordinating with the environmental division team: this cost is for aligning the internal
environmental team with local government representatives.
Expenses related to wastewater quality testing.
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Costs associated with air quality analysis and emissions from stacks.
Fees for audits concerning health and safety evaluations.
Costs for installing equipment to monitor emissions.
External failure costs
External failure costs are the expenses a company incurs to address penalties or costs associated with
environmental violations that affect external stakeholders. Since organizations and local communities share an
environment, the ecological issues caused by a business often have wider implications for society (Abiola &
Olugbenga, 2021). Such failure costs include expenditures intended to mitigate these broader societal and
environmental effects. Therefore, any costs related to the cleanup and upkeep of nearby protected forests due
to emissions produced by the company or damage to local residents, both physically and financially, would fall
under external failure costs (Van, 2011).
Return on Assets (ROA).
After all costs and taxes are paid, a company's return on assets (ROA) indicates its profitability. For every
dollar invested in the company's assets, it calculates the profit after taxes. It is an indication of a company's
managerial performance. According to Nnamani, Onyekwelu, and Ugwu (2017), ROA shows how well
management uses the company's entire asset base to generate profit and how lucrative the company is in
relation to its overall assets. A higher ROA ratio indicates superior management effectiveness. Increasing the
profit margin or asset turnover can raise ROA. Total assets divided by net profit before taxes is ROA. The
most frequently utilized ratio to influence the financial performance of a firm is ROA (Bamidele et al. 2025).
Theoretical Review
Stakeholders Theory Review This research is based on the stakeholder theory initially introduced by Mitroff in
1983 and elaborated by Edward Freeman in 1984 in his publication "Strategic Management." Freeman defined
stakeholders as individuals or groups with an interest in a firm due to the fact that they can influence or are
influenced by the firm’s activities. Carroll elaborates on stakeholders as any people or entities that can
influence or be influenced by the organization's choices, behaviors, strategies, procedures, or goals.
Stakeholders can be identified based on the validity of their claims, which is backed by a mutually beneficial
relationship with the organization. Consequently, stakeholders include shareholders, lenders, leaders, staff,
clients, vendors, nearby communities, and the broader society. The stakeholder theory suggests that an
organization typically responds to the needs and demands of key stakeholders, frequently through deliberate
methods of transparency.
The importance of stakeholder theory is found in its capacity to reveal the different factors that affect
management decisions related to a company's social and environmental reporting procedures. Prior research in
social and environmental accounting, which has applied these theories, reveals that companies align their
social and environmental disclosures in their annual reports with the expectations of their operational context
(Carroll, 1999). At this juncture, companies are required to protect the environment from which they extract
resources, making sure it remains suitable and healthy. This study is grounded in stakeholder theory due to its
connection and relevance to the subject matter. The stakeholder theory posits that organizations will address
the issues and anticipations of influential stakeholders, some of which will manifest as strategic information
sharing. Organizations must ensure that they maintain a favorable and healthy environment for resource
extraction. A persistent tension exists between stakeholders and the broader public interest. Stakeholders
typically prioritize profit, whereas the public seeks a sustainable and healthy environment. According to
stakeholder theory, companies have a responsibility towards a diverse group of stakeholders other than just
shareholders. This group encompasses creditors, customers, suppliers, local communities, government entities,
future generations, and more. A firm recognizes the significance of the customer, the surrounding
environment, and the local community in its overall success.
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Empirical Review
Environmental Cost and Financial Performance: Evidence from Nigeria
Evidence that has tested the relationship between environmental cost and financial performance of Nigeria's
business corporations, with particular focus on extractive industries, oil and gas, and banking, is growing.
Abiola and Olugbenga (2021) conducted panel regression on 18 Nigerian Stock Exchange-listed extractive
firms from 2010 to 2020. According to their results, administrative costs and environmental cleanup are
positively correlated with financial performance, and this can mean that investment in environmental concern
can have cost effects for profit. Location costs of business, though, were highly significant negative, while
research and development and social expenditure were not generally significantly effective. The authors
recommend the use of a more neutral framework by the extractive firms in the analysis of environmental
expenditure in an attempt to promote performance improvement.
Lawrence and Bernard (2023) examined the impact of waste management and community development
spending on the profitability of Nigerian companies between 2011–2020 using a panel EGLS regression.
Results show a multifaceted relationship: while part of the waste disposal and community development
spending is detrimental to net profit margin, allied expenses and firm size affect profitability. The study draws
attention to the importance of strategic environmental cost control and recommends greater engagement of
large firms in environmental stewardship.
Ilelaboye and Alade (2022) used family firms in Nigeria with panel data between 2012 and 2020. The OLS
regression results show that the cost of community development is significantly and negatively associated with
return on capital employed, whereas environmental remediation and worker health and safety expenses are
insignificant. This suggests not all that is spent green is profitable and the effect can differ by type of expense
and structure of family business ownership.
Ofurum and Iwunna (2022) studied 13 listed oil and gas companies for 12 years (2008–2019) and concluded
that pollution control expense has a negative influence on return on assets, while waste management expense
has a positive and significant relationship. It indicates that investment in the environment in areas such as
waste management can increase profitability, while others are costly.
Adebisi and Akwu (2024) tested the impact of environmental accounting disclosures on the performance of 14
Nigerian listed banks. Using a random effects regression model, they found that disclosure of environmental
conservation costs increases return on assets, but disclosure of compliance and community development costs
does not have or has a negative impact. The authors claim that banks put a great deal of emphasis on
environmental reporting of conservation expenditures so as to maximize profitability and caution that
inadequate environmental accounting can create information voids for investors and lenders.
Okere et al. (2022) examined the influence of environmental cost of accountability on the performance of three
oil and gas companies over 21 years (2000–2020). Using multiple regression, it was shown that internal and
external environmental failure costs significantly influence firm performance, but pollution prevention costs do
not. Internal failure cost control is the key to staying financially healthy and environmentally law-abiding, the
study highlights.
Oyedokun and Erinoso (2022) examined the nexus between environmental protection, sustainability, and
profitability among 11 listed Nigerian oil and gas firms from 2011 to 2020. According to the authors, there is a
strong correlation between environmental sustainability disclosures and financial performance in terms of
return on equity and profit after tax. Authors advocate that firms give importance to environmental concerns
rather than prioritizing environmental issues while maximizing operating profitability and long-term
performance.
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Comparative and International Evidence
Outside of Nigeria, there have been few studies providing comparative and international perspectives to the
issue between environmental costs and financial performance.
Nyahuna and Doorasamy (2019) analyzed 45 cement and mining companies listed on Johannesburg Stock
Exchange (2014–2021). Consistent with their panel regression analysis, higher environmental expenses, i.e.,
carbon management and pollution avoidance, are negatively related to return on equity. This shows that there
is an environmental-spending-profit trade-off in the South African economy and implies that companies have
to balance their environmental and financial objectives.
Amarasuriya et al. (2024) used a global sample of 1,738 companies (2011–2020) to explore the moderating
effect of operational productivity between the relationship between environmental-performance and financial-
performance. With their hypothesis stipulating so, consistent with their findings, high-operational-productivity
firms have stronger financial performance and lower carbon emissions, whereas lower-productivity firms are
financially poor despite lower carbon emissions. This indicates the importance of operational efficiency in
capturing financial returns on environmental investment.
Hasan et al. (2022) confirmed 56 GCC banks from 2010 to 2019 based on OLS fixed effects and GMM
estimations. Environmental activities were found to have a negative effect on accounting performance but no
effect on market performance. Contrary to what might be expected, conventional banks were better than
Islamic banks in environmental activities. The robustness of the findings based on different estimation models
suggests that the financial impact of environmental activities is contingent on institutional and market
environments.
RESEARCH GAP
As it is empirically known, the correlation between environmental costs and profitability is rather complex and
largely contradictory, especially with the consumer goods market of Nigeria. Indeed, some studies found that
some environmental costs, including the ones stipulated in remediation and conservation activities, can
optimize profitability of Nigerian firms (e.g., Abiola & Olugbenga, 2021; Adebisi & Akwu, 2024).
Contrastingly, the financial performance impact of other research (e.g. Ofurum & Iwunna, 2022; Ilelaboye &
Alade, 2022) is that community development costs and costs of pollution abatement have no financial
performance advantage or even firm negative repercussions. These incongruent findings are also confounded
by the variety of industry context, company size and methodology used.
In the case of Nigeria or any other firm in the field of consumer goods, this is especially the case with the
breweries. The breweries are in a highly-regulated and publicity-monitored environment with respect to
environmental responsibility, and the financial returns of its environmental investments are not clear cut. Some
companies can use aggressive run on the environment to obtain a higher netting but others can get less returns
because of heavy initial investment or improper resource distribution.
Although a lot of literature has been developed, there is a significant literature gap on the exact effect of
different types of environmental costs e.g. prevention, appraisal and external failure costs, on the profitability
of consumer goods firms in Nigeria and more so the breweries. Studies currently in existence have mainly
concentrated on extractive industries or oil and gas industry and only a few studies exist on the consumer
goods industry. Additionally, there is scant literature on the use of panels of robust data in untangling these
effects in the Nigeria context, which is also peculiar in its regulatory and economic environment.
This paper will fill these gaps because it will discuss systematically the impact of various operating costs
related to the environment in the financial of the listed breweries in Nigeria. In this way, it will add a new
contribution in the cost-benefit basis of the environmental accounting in the consumer goods industry and give
pragmatic advice to managers, regulators, and policymakers who intend to manage profitability outlook with
the goal of sustainability.
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RESEARCH METHODS
The ex post facto method was utilized because this research depended entirely on secondary data sources to
assess the influence of environmental operating expenses on the financial performance of manufacturing
companies, specifically focusing on brewery firms in Nigeria. The population for this study comprises 21
consumer goods firms listed on the Nigerian Exchange Group (NGX), from which 4 breweries were
purposively selected. The sampled companies used for this study are Nigerian Breweries Plc, Champion
Breweries Plc, International Breweries Plc, and Guinness Nigerian Plc. The purposive sampling of the
breweries out of the general population of consumer goods companies can be justified by a number of reasons.
One of the highly environmentally-sensitive sub-sectors is the breweries, which is under heavier regulatory
scrutiny since they use large amounts of resources and produce huge amounts of wastes. They are also known
to have greater rates of complying to environmental standards and transparency in their sustainability reporting
which is usually fueled by multinational ownership and stakeholder demands. Moreover, breweries tend to
offer more detailed and credible environmental and financial reporting, which makes it easy to conduct an
empirical test. In turn, by narrowing down on brewery firms, one could better investigate the correlation
between environmental expenses and revenues in the consumer goods industry in Nigeria.
The panel data utilized in this research was sourced from the annual reports and financial statements of the
chosen companies. The analytical methods employed in this research comprise both descriptive statistics and
inferential statistics. Descriptive statistics elucidate the features of the research variables. It discloses the
average, middle value, variability, and additional frequency distribution measures, such as the highest and
lowest values of the time series data. The inferential statistics employed in this study involve correlation
analysis and panel data regression analysis. Regression analysis was employed in this study because there is
more than one independent variable affecting the dependent variable. The three estimation techniques used
were ordinary pooled OLS, the fixed-effect model, and the random-effect model. Meanwhile, the Hausman test
was conducted to choose the most reliable and consistent estimation technique.
Model Specifications
The research modified a framework previously employed by Uzoh (2022) in his investigation concerning the
impact of environmental expenses on the financial results of chosen oil and gas companies in Nigeria. Costs
associated with pollution prevention, costs for environmental protection, costs related to recycling, and
expenses for environmental remediation served as indicators for environmental accounting, whereas return on
capital employed represented the measure for company performance. The econometric structure of the model
is presented below:
ROCE = a
0
+a
1
PPC + a
2
ENVPC + a
3
ENRRC + a
4
ENRC + µ
t
………………………………….3.1
Where;
ROCE represents the return generated from the capital utilized
PPC refers to the expenses related to avoiding pollution
ENVPC pertains to costs associated with environmental safeguarding
ENRRC indicates the expenses incurred for recycling in an ecological context
ENRC relates to the expenses for environmental cleanup
a
0
represents the intercept
a
1
, a
2
, a
3
, a
4
, represents slope coefficients
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This study modified this model by looking at financial performance through the lens of the return on assets
(ROA). While prevention cost, appraisal cost, and external failure cost were used as proxies for environmental
operating cost. The functional model for this study is as follows;
ROA= f(PC, ACST, EFCST) ………………………………………………………………..….3.2
While the regression model is as follows:
ROA = a
0
+a
1
PC + a
2
ACST + a
3
EFCST + µ
t
…………………………………………………..........3.3
Where;
ROA = Return on Assets
PC = Prevention Cost
ACST = Appraisal Cost
EFCST = External Failure Cost.
a
0
represents the intercept
a
1
, a
2
, a
3
, a
4
, represents slope coefficients
DATA ANALYSIS AND RESULTS
Table 4.1. Descriptive Statistics
Source: Authors’ Computation, 2025.
The descriptive statistics outlined in Table 4.1 illustrate the characteristics of all data points observed. These
characteristics comprise metrics such as the mean and median, which denote central tendency. Additionally, the
variations within the dataset are expressed through the standard deviation. The findings indicate that the mean
values are 10.56, 5.05, 0.13, and 0.12, with standard deviations measuring 6.01, 3.15, 0.06, and 0.04 for return
on assets (ROA), prevention cost (PC), appraisal cost (ACST), and external failure cost (EFCST), respectively.
Besides the numerical summary of our dataset, the descriptive statistics also evaluate or assess the normality of
the variables observed. In simpler terms, this evaluation determines whether the distribution of variables aligns
with a normal curve. To dismiss the null hypothesis, which suggests the data lacks normal distribution, the JB
(Jarque-Bera) statistics must be significant at the 0.05 level. Consequently, the results from the normality test
ROA
PC
ACST
EFCST
Mean
Median
Maximum
Minimum
Std. Dev.
Skewness
Kurtosis
Jarque-Bera
Probability
Sum
Sum Sq. Dev.
Observations
40
40
40
40
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indicate robust support for the claim that the panel variables and data set usually follow a normal distribution,
as the JB-statistic probabilities of 0.1437, 0.1669, 0.1619, and 0.1081 for return on assets (ROA), prevention
cost (PC), appraisal cost (ACST), and external failure cost (EFCST) are all above the threshold of 0.05.
Therefore, the outcome of the Jarque-Bera test confirms that the data adheres to a normal distribution, making
it suitable for inclusion in the analysis.
Table 4.2. Pearson Correlation
Source: Authors’ Computation, 2025.
Results presented in Table 4.2 of Pearson correlation analysis indicate that the degree of correlation between
prevention cost (PC), appraisal cost (ACST), external failure cost (EFCST) and returned on assets (ROA) are
positively correlated with degrees of values of 0.4294, 0.1142, and 0.0769, respectively. This implies that
plainly in bivariate terms, financial performance of the sampled breweries is directly related to a rise in any of
the categories of environmental operating cost. The moderate positive correlation of the prevention cost and
ROA (r = 0.4294) mean that company spending more resources on prevention in environmental terms has a
tendency of reporting higher returns on its assets, which, possibly, necessitates the long-run advantages of
proactive environmental management. The lower values of positive correlations with appraisal cost (0.1142)
and external failure cost (0.0769) show that although these costs also contribute to better financial results, their
effects are not that strong and evident on ROA. All these results of the correlation analysis are evidence
indicating that environmental operating costs generally and its prevention focused part specifically might be
having a positive contribution towards the financial performance of brewery companies in Nigeria. It should be
mentioned, though, that the correlation does not presuppose causality, and additional multivariate analysis is
required in order to isolate unique effects of each cost component on profitability of firms.
Table 4.3: Correlated Random Effects -
Equation: Untitled
Test cross-section random effects
Test Summary
Chi-Sq.
Statistic
Chi-Sq. d.f.
Prob.
Cross-section random
58.080137
3
0.0715
Source: Authors’ Computation (2025)
EFCST
ROA
PC
ACST
ROA
1.000000
PC
0.429442
1.000000
ACST
0.114222
0.081888
1.000000
EFCST
0.076981
0.238867
0.051544
1.000000
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The Hausman test was performed in this research to determine the best estimation model to utilize. The null
hypothesis of the Hausman test posits that the random effects model is the better choice. Consequently, the null
hypothesis was upheld due to the findings of the Hausman test, indicating that the p-value of the chi-square
statistic for the cross-sectional random effect test at 0.0715 exceeded the critical threshold of 5%, accompanied
by a notable chi-square statistic of 58.0801.
Regression analysis of the effect of prevention cost, appraisal cost and external failure cost on return on assets.
Table 4.4. Random Effect Model analysis
Source: Authors’ Computation, 2025.
The panel regression finding (Table 4.4) shows that once the effects of all the factors have been considered, the
effects of prevention cost (β = -0.9376, p < 0.001) and external failure cost (β = -29.6962, p = 0.0376) show
significant negative effects on ROA, whereas, the effects of appraisal cost (β = 17.1978, p = 0.0801) show
positive but not statistically significant effect. Precisely, the very negative and highly significant regression of
prevention cost implies that in case the effect of all other cost categories in the environment is considered,
higher prevention costs are in fact positively related to lower ROA. The counterintuitive nature of the findings
could possibly be accredited to the idea that overriding prevention activities at the time could take much more
impact than paying on short-term yield, or that the financially driven investments are not being overseen
astutely enough to proclaim anticipated returns. On the same track, a large negative value of external failure
cost implies that increased spending on environmental failures i.e., penalties, remediation, or compensation of
harming the environment relates to lower profitability of a business hence the financial risks of poor
environmental management practices. Conversely, the statistically unreliable (5 percent significant level)
Dependent Variable: ROA
Method: Panel EGLS (Cross-section random effects)
Date: 05/10/25 Time: 06:38
Sample: 2014 2023
Periods included: 10
Cross-sections included: 4
Total panel (balanced) observations: 40
Swamy and Arora estimator of component variances
Variable Coefficient Std. Error t-Statistic Prob.
C 16.36469 2.373470 6.894837 0.0000
PC -0.937606 0.179688 -5.217956 0.0000
ACST 17.16777 9.532446 1.800983 0.0801
EFCST -29.69622 13.75800 -2.158469 0.0376
Effects Specification
S.D. Rho
Cross-section random 3.44E-07 0.0000
Idiosyncratic random 3.414530 1.0000
Weighted Statistics
R-squared 0.245484 Mean dependent var 10.56600
Adjusted R-squared 0.182607 S.D. dependent var 6.007256
S.E. of regression 5.431147 Sum squared resid 1061.905
F-statistic 3.904227 Durbin-Watson stat 0.554853
Prob(F-statistic) 0.016357
Unweighted Statistics
R-squared 0.245484 Mean dependent var 10.56600
Sum squared resid 1061.905 Durbin-Watson stat 0.554853
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positive coefficient of appraisal cost implies that expenditures on monitoring and evaluating environmental
performance can be associated with financial performance, but rather insignificantly. Taken together those
regression outcomes demonstrate how multidimensional and even harmful the financial aspects of
environmental operating costs can be and ask firms to treat and control these expenditures as strategic
management tasks to boost sustainability as well as competitive corporate governance.
DISCUSSION OF RESULTS
This research assessed how environmental operating costs influence the financial performance in the lens of
the return on assets (ROA) of consumer products in Nigeria. The focus was on publicly traded brewery
companies within the country. A panel data regression technique was applied to analyze the information
gathered from the four firms. Descriptive and inferential approaches were used in the analysis.
The Hausman test was performed, and its outcomes suggested that the random effects model be adopted for the
regression analysis and testing of the hypothesis. The regression outcomes also showed that there is a strongly
negative relationship between the prevention costs (PC) and return on assets for these firms. This means that
an increase in the prevention costs results in a lower return on assets. In addition, the regression analysis
indicated the impact of ACST on ROA was statistically insignificant. The analysis also showed that externally
incurred failure costs possess a statistically significant negative impact, thus indicating a negative relationship.
As seen by the difference between the results of the correlation and regression results, multivariate analysis is
important. Although the positive correlations seem to imply that greater environmental cost might be
accompanied by greater profitability, the regression analysis makes the issue clear by stating that when the
impact of every category of cost is assessed simultaneously, the conclusion that greater prevention costs and
external failure costs are coupled with a lesser profitability is drawn. It does imply that these costs might be
costing the companies more in the short run or that these costs are being poorly managed. The results
emphasize the importance of the firms to watch keenly their environmental spending and maximize it in such a
way that it is impactful on the financial performance.
CONCLUSION
The focus of this analysis was the effect of environmental operating costs on the return on assets of consumer
goods company operating in Nigeria. The study found that the application of prevention costs directly impacts
the return on assets. The study also concluded that the appraisal costs do not have a statistically significant
impact on the return on assets. In addition, external failure costs adversely affect the return on assets of the
selected firms, which clearly demonstrates their detrimental impact.
RECOMMENDATIONS
This study recommends that; Prevention-related expenses may result in higher upfront costs, which may
impact ROA. The analysis suggests that manufacturing firms should periodically engage financial planners and
quality management consultants to obtain strategic advice aimed at reducing prevention costs while improving
ROA.
In addition, the study urges optimization of assets, enhancement of the valuation techniques, and active
monitoring of the KPIs, which are critical to addressing the problem of the costs of undervaluation and
enhancing the overall ROA.
Furthermore, corporate strategies ought to focus on proactive error avoidance and enhanced quality control
during all stages of product life cycle management. This encompasses developing a comprehensive quality
control system, employee training, and promoting sustained enhancement initiatives. Moreover, promptly
addressing client complaints serves to mitigate the financial and image damage resulting from external
blunders.
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Lastly, the companies must monitor the specifics of error prevention, assessment, internal and external, to
judge the impact of existing frameworks on the company's quality management system.
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