Profit dynamics under environmental constraints: Evidence from the salmon farming industry

This study examines how stringent environmental regulations and associated firms\’ environmental impacts influence profitability, using a profit-persistence model. This model distinguishes between core and non-core profit, corresponding to permanent and transitory earnings, respectively. This approach allows for an analysis of how environmental variables and profit components jointly affect the persistence of profits. The empirical case is Norwegian salmon farming, where a new environmental regulation (traffic light system–TLS) was recently introduced. Using an index that reflects environmental impact, the empirical results suggest that the new environmental regulation strengthens the negative impact of non-core profit on the overall profit, leading to increased profit volatility. Additionally, the impact of the new regulation on profit and its combined effect with profit components vary across production regions depending on their environmental impacts. This study presents a novel method for comprehensively evaluating the impact of environmental regulations and the associated firms’ environmental impacts on financial performance.