Do Corporate Global Environmental Standards in Emerging Markets Create Or Destroy Market Value

Glen Dowell, Stuart Hart and Bernard Yeung

No 259, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Arguments can be made on both sides of the question of whether a stringent, global corporate environmental standard represents a competitive asset or liability for multinational enterprises (MNEs) investing in emerging and developing markets. This paper seeks to answer this question by analyzing the global environmental standards of a large sample of US-based MNEs in relation to their market performance. We find that firms adopting a single, stringent global environmental standard have higher market values, as measured by Tobin's q, than firms defaulting to less stringent, or poorly enforced host country standards. Thus, developing countries that use lax environmental regulations to attract foreign direct investment end up attracting poorer quality, and perhaps, less competitive firms. Our results also suggest that externalities are incorporated to a significant extent in firm valuation. We discuss plausible reasons for this observation.

Keywords: corporate environmental policy; corporate performance; race to the bottom in foreign direct investment (search for similar items in EconPapers)
Pages: pages
Date: 1999-06-01
New Economics Papers: this item is included in nep-ene and nep-ifn
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Citations: View citations in EconPapers (3)

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