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Impact of Environmental Regulation on Cross-Border MAs in high- and low-polluting sectors

Author

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  • Federico Carril-Caccia

    (Universidad de Granada, Departamento de Economia Española e Internacional)

  • Juliette Milgram Baleix

Abstract

We test the influence of environmental regulation (ER) on the location decision of cross-border Mergers and Acquisitions (M&As) for a large sample of countries, sectors, and years using a structural gravity model. Our results confirm the pollution haven hypothesis in highly polluting sectors, according to which more stringent ER makes countries less attractive to foreign investors planning to invest through M&As compared with domestic investors. Policies that set quantitative limits on emissions discourage investments in dirty sectors, while taxes on emissions only have a negative impact on clean sectors. The impact of ER differs depending on the type of investors and investees, reflecting the fact that investments in developed countries and BRICS respond to different motivations. In emerging countries, lax ER could attract significantly more inward M&As. In developed countries, ER has a less discouraging effect.

Suggested Citation

  • Federico Carril-Caccia & Juliette Milgram Baleix, 2023. "Impact of Environmental Regulation on Cross-Border MAs in high- and low-polluting sectors," ThE Papers 23/04, Department of Economic Theory and Economic History of the University of Granada..
    • Handle: RePEc:gra:wpaper:23/04
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    Keywords

    Environmental stringency; pollution havens; M&As; structural gravity; polluting sectors.;
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