Governing Global Externalities: Investor Voice Amid Fragmented Policy

Döttling, Robin, Doron Levit, Nadya Malenko and Magdalena Rola-Janicka

No 21986, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study whether investor voice can help address global externalities under fragmented regulation. In our setting, a multinational firm generates externalities across jurisdictions, national regulators face political frictions that can impede corrective regulation, and policy differences create scope for regulatory arbitrage and production leakage. We compare two channels of investor influence: corporate stewardship, which affects firms' global operations, and policy advocacy, which affects local regulation. Both channels can help address global externalities, but their relative effectiveness depends on political frictions abroad. When these frictions are severe enough to prevent foreign regulation, leakage weakens policy advocacy but strengthens stewardship. When foreign regulation is politically feasible, however, stewardship can crowd out foreign regulation and reinforce policy miscoordination, while local policy advocacy can crowd in foreign regulation and reduce externalities abroad.

JEL-codes: D62 D72 F42 G23 G34 G38 H23 (search for similar items in EconPapers)
Date: 2026-09
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